Top 5 Sneaky Cash Leaks

Since this is a money focused blog I am about to share the top 5 ways cash can leak from your life. It’s hard enough to make money, so why allow any of it to be pilfered (stolen) from your purse? But it can happen without even realizing it. I know I’ve been bitten a time or two, but with financial education comes transformation. Now I am alert to the ways my money can slip away almost undetected.

Overdraft Loans

If you have a bank account you know what this is. You bank covers a payment when your money runs dry but you pay a heavy price. Most banks charge $35 per incident which can put your account further in the negative. The way to prevent this from happening is to closely monitor your account and be aware of your balance. You can check online or with your bank’s mobile app. It only takes a second to avoid paying extra money to your bank.

An overdraft loan is a transaction that your bank pays when you have insufficient funds in your account to cover a payment. Banks typically charge $35 per overdraft, which can be triggered by debit card purchases, ATM withdrawals, checks, or other payments from your bank account. Some banks charge a second fee if not repaid within a few days. Banks collect payment by deducting the overdraft amount and fees from the next deposit into your account. Overdrafts are the most expensive bank credit.

Tax Refund Anticipation Loans (RALS)

The first year this came out I used it because I desperately wanted my tax refund sooner than later. In the years that followed I weighed the cost of getting the money faster and paying as much as 50-500% in fees against waiting 8-10 days and getting all of the money I was expecting. I’ve chosen the latter option every year and have not regretted being patient.

RALs are extremely high-cost bank loans sold by tax preparers and secured by the taxpayer’s expected tax refund – loans that last about 7-14 days until the actual IRS refund repays the loan. RALs cost 50 to 500% APR when all loan fees are included. Some tax preparers also charge a separate fee, often called an “administrative” or “application” fee, in addition to the RAL bank’s fees. Tax preparers and their bank partners also offer an “instant” same day RAL for an extra $20 to $39. RALs are a declining product due to action by bank regulators and the IRS.

Car Title Loans

I have never done this because I value my transportation too much. I couldn’t stand the sleazy commercials either and before I knew how much you’d end up paying an arm and a leg to repay the loan. A typical car title loan costs 300% APR, must be paid in one month, and is made for much less than the value of the car. Most cars are repossessed so you lose money and your car.

A car title loan is a short-term cash loan where the car title is used as collateral.  Title loans are typically made without regard to borrowers’ ability to repay. Borrowers risk repossession if unable to repay at the end of the month.

Check Cashing

This is another service I refuse to use because the high fees they charge. Most people who use these services don’t have a banking or credit union account so they feel they have to use this service.

Check cashers sell basic financial transaction services, such as check cashing, money orders, money transmittal, or prepaid debit cards. Many check cashers also make payday loans in states that authorize that product. Check cashers provide these services in exchange for often high fees.

Prepaid Cards

Prepaid cards can be a blessing or a curse depending on your perspective. I’ve used them when I purchased them from a retailer like Walmart or Target. I’ve also used them when I wanted to cash a refund check and that was the primary form of money issued.

I’ve had a prepaid card from a bank once to use like a credit card. I had to deposit money into the account and the transactions would be reported on my credit report. It is used as a credit rebuilder. The down side to it are the fees that are deducted from your total amount.

Prepaid debit cards, often called stored value cards, are a payment method used by unbanked and underbanked consumers to make transactions. Funds are loaded onto the card and then spent when consumers swipe the cards at retailers or withdraw cash via ATMs.  Prepaid cards can be useful to consumers but often come with steep fees and are not clearly protected by the federal laws that apply to debit and credit cards.

So there you have the top five sneaky cash leaks. In a nutshell:

1. Overdraft Loans because of insufficient funds come with a heavy fee for each overdraft incident

2. Tax Refund Loans hit you with a heafty fee to take out the loan, sometimes as high as 50% of your expected refunds in fees.

3. Car Title Loans put you at risk of losing your car on top of paying up to 300% in interest.

4. Check Cashing services charge very high fees to cash the check. In addition to paying taxes to Uncle Sam on your paycheck you are also paying to have your check cashed.

5. Prepaid Cards tack on fees to use the card and it’s hard to get a refund if something goes wrong.

Source: http://www.paydayloaninfo.org/other-high-cost-credit-products