Welcome back to the series FitnanceIQ family!!!
This week we were able to discuss money traps that affect our primary financial state, give it a read if you are able to. Have you been money trapped and need to “Get Out” (If you have seen the movie that joke will make sense)? If you were once trapped how did you manage to get out?
I want to share more about myself like I mentioned in the previous post, I have seen my family and friends involved with some of the money traps. The only way out of the money trap is changing your spending habit and reducing your costs. Yes, there were times we had no TV or the internet (chiming in the violins). Yes, there were times we ate franks and beans with rice (shivers) and yes, there was a time when we all lived in a one bedroom apartment to save enough to live in the house we have now. Nothing my family and I have was without working our arse off! So it’s all about downsizing for a couple of months or even years to accomplish your financial goals.
But first let me reintroduce what money traps are, well these are certain things that make you lose out on money or help you get into more debt; whether you think it is good debt or bad (most likely they are bad debt). These money traps will actually put you in further financial distress. Especially cause these are situations that most of us were never really taught in school or by our parent because perhaps we witness our parents using them to get by as well or the mindset of wanting fast money now.”
Now if you remember the common money traps, great! However, trust me there are still ones that will say they are helping you but (pardon my French) screwing you over if you fall behind; those I call money concerns. So after a couple of days of wondering what I should actually call these, I decided money concerns would be the safest term.
Money concerns would be an option that you would consider if you are on the right path of being financially stable; but if a personal financial crisis hit you, it would have you in tied up in financial distress. So let us discuss these ones. Mind you I haven’t personally dealt with any of these, but I will provide articles on how to minimize risk on them (if risk involved).
So the money concerns ones:
- Instant tax refunds
- Consolidation loans
- Home Equity loans
- Rent to own (house)
Instant tax refunds
The rundown
The most popular ones are H&R Block, Softron Tax and Liberty Tax Services. Just like payday loans (MoneyMart) you can find H&R Block ANYWHERE. When I was younger I always wondered how you could instantly get your money back! Is it really that simple? Based on an article I found (it is a bit old but you will get the concept):
“The Tax Rebate Discounting Act of 1985 spells out that discounters are allowed to charge no more than 15 percent on the first $300 of the refund and five percent of anything above that. That hasn’t changed in 30 years.
So, those getting a $300 refund would be charged $45 to get instant access to their money. A $1,000 refund would attract a fee of $80. A $1,696 refund — the average refund in the 2013 year, according to the CRA — would result in a fee of about $115.”
How much will I get?
CRA refund: $1,600 Fee: $110 Instant refund: $1,490
CRA refund: $1,000 Fee: $80 Instant refund: $920
CRA refund: $500 Fee: $55 Instant refund: $445
CRA refund: $200 Fee: $30 Instant refund: $170
So basically instead of waiting for 2 weeks individuals decided to pay a fee to get their money now. Hey, I’m not here to judge but if you can hold off for a week or two, that’s properly a better option. I rather wait a bit longer to get my FULL refund, but if you do have an emergency I understand. If you want to know more about instant Tax refund click here.
Debt Consolidation Loans
Rundown
Have you ever seen those Ads on TV, on the train or online about making one single payment each month for your debt? So I decided to find articles that explain more about Deb consolidation loans:
“A debt consolidation loan is a financial tool that allows you to combine (consolidate) your unsecured debt – credit card debt, personal loans, and the like – into one loan from one lender. The lender pays off all your unsecured debts while gathering the combined sum into a single package highlighting one single interest rate.”
This is ideal for individuals that are feeling overwhelmed with all your unsecured debt (credit card and loans) or on the verge of bankruptcy and want to simplify your debt.
Well, this sounds like a good idea, what is wrong with this one?
Well, this one would be the reason why I would not touch it with a ten-foot pole!
“To qualify for a debt consolidation loan, you may be required to give some form of collateral. This may mean a second mortgage on your house, or a lien against your car or household furnishings. If you are unable to make your loan payments, you risk losing your car, home, or household goods.”
Umm, this is one risk I do not want to take! Ideally, you don’t want to get into this, if you think you are heading towards this path. CUT UP YOUR CREDIT CARDS! You need to seriously rearrange your spending habits. Please check out these articles from Bankruptcy Canada, MyMoneyCoach and Credit Canada. It will give you the solutions you need!
Home Equity Loans
Now this one is rather complicated!!! This is one that can be a good idea if used right, but a bad idea if you experience a major financial crisis! According to this article, I found:
“Most homeowners use their home equity for a variety of reasons, such as renovating, investing in another property, paying down debts, or even taking that much-needed vacation. In order to facilitate this, the mortgage industry has introduced an influx of flexible mortgage products. The product you choose depends on your reasons for acquiring the extra cash and the amount of equity that you’ve built in your home.”
Well based on that statement above I can see 50/50 good and bad reason for using it. Anything to increase your home equity is a good reason to use it and a good investment, even the investing on another property could be a good idea. I’m concerned about paying down debts and the vacation, which is just a way to transfer one debt to another. I would advise beware of you pursue that way. Please read more on WhichMortgage and Yahoo to get more information.
Rent to own (houses)
I know what some of you will say. Kamille, last week you said rent to own for furniture or appliances are not good, would it not be the same for a house! Welllllll…this one can go either way as well. This is why I consider it as more as a concern than a trap. My friend provided an article about it:
“Rent-to-Own (RTO) can be a viable way to get into owning your house if you are not yet ready to qualify for a mortgage.
This option allows you to control the real estate through legal agreements while you work on rectifying any issues needed for successfully qualifying for a mortgage. So how does rent to own really work?”
Which was agreed with another article
“The concept of rent-to-own can be a very effective way for a home buyer who does not have enough of a down payment, or the right credit score, to buy a home. It allows you to make the purchase over time at a set price.”
This seems like to me this is ideal for individuals that have been saving for quite a while but the way the market is going these days it is stressful. So taking this into consideration that this may be the best option for you with getting a house. Please do your research and see if this option will work for you!! I believe if you read these articles from Cleve Desouza and Toronto Star, it will help to see if you are one of those individuals that can consider.
These are definitely complicated money concerns that need to be researched thoroughly before considering them. Are there any money concerns that I missed? Can you relate? If you have any questions please feel free to ask me, and if I can’t answer them I’ll find an answer to your question. Remember the main goal is about educating each other, becoming LEADERS and being financially fit. Much love to you guys.
References
http://www.cbc.ca/news/business/taxes/tax-time-2015-are-instant-tax-refunds-worth-the-cost-1.2510036
http://www.mymoneycoach.ca/budgeting/loans-debt-credit/budgeting-consolidating-debts
https://creditcanada.com/debt-consolidation-loan-primer
https://www.bankruptcy-canada.ca/debt-consolidation-loans
http://www.whichmortgage.ca/article/accessing-your-home-equity-118749.aspx
https://ca.finance.yahoo.com/blogs/pay-day-/pros-cons-home-equity-loans-161725288.html
http://byblacks.com/the-experts/real-estate/item/1593-rent-to-own-may-be-the-way-to-go