Reduce Debt Increase Wealth

Pawn Shop

April 24, 2022 MIsterchuck Season 3 Episode 110
Reduce Debt Increase Wealth
Pawn Shop
Reduce Debt Increase Wealth +
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Show Notes Transcript

Is it a good place to get a loan, it depends on what the use of the loan is going to be. Be careful and know the interest rates and all fees before accepting this type of loan. 

 Article Links: By Paul Sisolak By Tim Parker

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. pawn shops, is it a good place to get a loan, it depends on the use of the loan is going to be Be careful and know what the interest rates and all the fees are. Before accepting this type of loan, not only am I going to talk about Pawn Shop loans, moss, we're going to talk about online personal loans, title loans 401k loans, cash advances on your credit card. If you're consider using any of these loans, the best advice would be, don't do it. And before we get into all that, I have two articles. The first article is from Investopedia. The eight possible risks of unsecured personal loans. What are the risk, and that not only personal loans, but all these types of loan, whether it's a pawn shop loan, a title loan, a credit card advance, you're gonna have all the same things you need to look out for. And number one is interest rate. Just because you qualify for a personal loan doesn't mean you should take it. Some personal loans come with interest rate well below 10%, while others may be three or four times higher, the interest rates on these loans depends on your credit score. But lenders may charge whatever they want, providing the rate falls within certain laws. So every state is going to be a little bit different. But you definitely are gonna be paying a lot more money on loans. Now let's talk about pawn shops. When you get a loan from a pawn shop, what happens, you take in an item that they use as collateral, maybe the retail value of that item was $1,000, they take a look at it and make you an offer, they may say that the retail value of it is $800. And they'll give you around $350. So a pawn shop will give you anywhere from about 35% of what they value it at up to around 60%. They do that because they got to make a profit, and be where some pawn shops may cause a charge and additional fees. And other than the interest that they're getting from that loan. The interest from a pawn shop loan is gonna be about 180%. It's fairy fairy expensive. So if you're going to a pawn shop, or if you're looking to raise some cash, to help you get out of debt, doing a pawn shop loan, or any of these loans is not advisable. Because what's number one on your debt reduction plan, quit creating new debt. So if you take out any type of loan, that's creating new debt, so if you do a loan, perhaps you're looking for a loan to consolidate, or pay off all your credit cards, so you have one loan instead of three or four. But you can do that by going to a bank or other financial institute, where they do a credit check on you. And based on your credit rating, you might be able to get a loan, say around 8%. If you're paying off credit cards that have an average interest rate around 20%, you're gonna save some money. Before doing that you have to know that that when you pay off those credit cards, you got to quit using them. He don't want to cancel them and close the account. He just got to quit using them. Then maybe every three or four months, put one small charge on them to keep them active so they don't close them for you. So if you're at a pawn shop is that's the way you're going. Maybe you have items you want to get rid of, and you tried to sell them online, and nobody made any offers. Maybe you had yard sales, garage sales, all those items, and you were unable to sell it. Well then going to a pawn shop might be a good way to sell an item. I'm not saying going to pawn shop to get a loan on an item, that you take that item in to the pawn shop, and you just sell it to him. But beware, if it has, if you paid retail$1,000 for it, and you sell it, Tom, you probably be lucky to get 450, the $600 600 would be on the high side. So if it's something that was a gift, he didn't pay for something, you may have inherited something that you really don't want anymore, and you don't want to go to the trouble of trying to sell it to get full value, then a pawn shop, it may be a good place to sell some items to raise some cash, it won't be as much as you could have gotten to help you reduce your debt. That's the only thing good about the pawn shop. If you have a hobby, and pawn shop actually have stuff that you use in your hobby, a pawn shop may be a good place to buy some items. As long as you know what you retail prices, what you can buy it for brand new versus buying something used. And then you have to make an informed decision on not paying too much. And going to the pawn shop, you might be able to no gate go shake the price down, if you're trying to buy something. And the same way you might be able to negotiate the price up, if you're trying to sell something at depending on what it is, if they need it or not, how fast they think they can sell it. And all those other factors involved. So you know, it might be of some good use for you. Now, let's talk about what else interest rate, he also has to be aware of all these types of loans, early pay off penalties, they may not allow you to pay the loan off early, even if you have the money, or they're going to charge you a fee for doing so. So that's not such a good idea. So, you got to keep you know, out look out for high rates of interest, early pay off penalties, big upfront freeze, how much would it cost you to get the loan into your bank account, they might have a or or origination fee, or and they vary widely. So it may be a high percentage privacy concerns, they may be less and formal lenders and they mean not be required to have as much privacy about what you owe them and all that kind of stuff. And they might give you the insurgence pitch, where they're trying to sell you some insurance to protect the loan in case of something unexpected happens that in that case, you probably would be better off to call your insurance agent and get some disability insurance through somebody that you know and trust. And you'll probably get cheaper and better coverage. So don't buy any of the insurance no matter what it is. If they require it walk away and don't do the loan. Pre computed interest, basically pre computed interest uses the original payment schedule to calculate your interest regardless of how much you've actually paid on the loan. In other words, if you make additional payments early, they're still going to compute the interest as if you didn't make additional payments, they're not going to give you a break on that interest. You're looking for a loan that has simple interest, which means they take the unpaid balance and calculate the interest from there. So when you make extra payments, your interest is going to go down a little bit faster. Payday Loans. A friend did mention that earlier but payday loans are the same thing. Also known as pay advances. There are short term Personal Loans financial gurus and government agencies advise consumers to avoid the interest rates are very high in terms awesome force people into rolling over the loans for additional terms. If you think about it, your payday loan businesses, your pawn shop businesses are all in neighborhoods was lower income persons. So they're there to take advantage of people who are hurting for money or take advantage or for people who are less likely able to afford it. So they're gonna fall on the loans, and then the pawn shop gets to keep the item and sell it for the full price and make a big profit and keep it unnecessary complications out of the loan. If a company is going to offer you a payment holiday, where you don't have to make a payment or cash back off Are any other entitlements, I understand that company is not going to lose money on the deal. So the only possible loser would be you, the personal loan should be simple to understand. If it's not at a red flag, if it seems to complicate it, don't do it. There are better ways to borrow money. Go to your trusted bank, pawn shops, title loans, and title loans are just as bad, you have to have a vehicle that doesn't have any that you have paid off. And you take the title and they hold the title they make might require you to give them an extra set of keys. And you they loan you some money based on the value of the car, say $1,000 or $2,000. And if you default on it, they come and repo the car, now you got no way to get to work. So your situation went from dad, you know struggling to pay your bills, to terrible, unable to get work to make money to pay your bills. So keep that in mind on Title Loans. Maybe you own a motorcycle or something else that has a title that he can use. And that's paid off, he can use to get a cash advance on. Remember, you're creating a new loan, and if he can't, are unable to pay it, and unable to pay it off, you're going to forfeit whatever it is you're using as collateral. Whether it's your motorcycle, a boat, RV, camper, or your personal automobile, you stand the chance of losing it. And in my second article is from policy Five risky loans to avoid at all costs. Number one is Pawn Shop loans. We already discussed that. And you know, a monthly average of 10% works out to 12% APR, but it sounds cheap. But it may be cheaper than a credit card. But I don't know. It's not so good. Payday loans are considered one of the most predatory in the business as they exploit lower income workers who have a hard time making ends meet with oppressive interest rates that send them farther into financial trouble. They can justify the higher rates of interest because they have a higher rate at default on loans. And their annual interest rates is upwards to 400%. That's pretty high. I mean, that's like four times what you borrow. If it's 400% a year you borrow$1,000 In the first year you owe$4,000. And it keeps getting worse after that. So don't do it. Title Loans. It does. How does his loan sound that year up put up collateral for your car which are already paid off with an auto loan at 250 to 300% annual interest follows on loan lose your car. We don't recommend card title loans as a lending option under any circumstance. To put up an asset as an as as expensive as a vehicle in the hands of the lenders give them the authority to take it from you if you don't pay the loan. They APR will be inflated to astronomical proportions just to make it harder for you to follow through. That's why car title loans are similar to pawn shop loans. Risking loss of valuable asset isn't worth the money loaned to you. Keep your car title. If your finances are spread too thin, you're better off selling your car instead of potentially gambling away in two hands of a unscrupulous lender. Tax refund anticipation loans. Tax preparers do this or at least some of the major ones. He received the income tax refund but you might be thinking how you'd like to get next year is earlier than usual. If you're really, really impatient for years. For that you can take a tax refund anticipation loan, or are able to get your money early. After calculating how much money you do to receive from the IRS. You work with a lender usually through a tax prepare for a loan and the full or partial amount of the anticipated refund. He received the money within a couple of days and when your real refund comes through. It used to cancel out the loan. What many people don't realize is that with the fees and interest rate up to 30% 36% attached to our ACLs to total cost so one can climb so high that your tax refund may not be enough to cover it. If your refund Find a smaller than your loan amount, it will be responsible for paying the difference. That expense Sally won't be a tax deduction on your next tax return. Good things come for those who wait. So if you're eagerly anticipating your tax refund, remember that patient is a richer, but refund and precipitation loans are not. And one note here, if you're getting a large refund every year, he should just read withholdings and get that every pay instead of once a year. Why give your money to the IRS to hold. And now Especially now, when they're saying they're slow in processing the tax returns that you filed, and you might wait in that does Shrove 236 weeks to get your refund? Once you get your refund every pay period instead, fill out a W four W for adjust withholdings and get your refund every pay instead. don't overpay? Do you ever pay when you buy groceries? Do you ever bet pay when you buy an automobile? Porsche? Don't you look for the best possible deal. So why are you overpaying on your taxes, it should be the best possible deal. Pay what you're required to pay and not much more 401 K loans for those of you have retirement options through work, he may have a 401k. And they may offer you a loan. First thing is if you need money, you don't want to withdraw money out any retirement savings. Because if you do, it's going to be subject to ordinary income if you're under age 59 and a half. And it's going to be subject to a 10% penalty. They don't want you to take the money out of these retirement vehicles. And it's also risky because what happens if you lose your job, you might be required to pay that loan back in full. And how are you going to pay something back if you don't have a job. And also it reduces what you're going to have when you get ready to retire and might reduce your benefits when you get ready to retire. And you'll probably forget that he took that loan and it could cost you dearly down the road. Credit card cash advances is where you get a cash advance on your credit limit might not sound so bad. But you consider it's extra money you're going to put on going to pay back on your monthly balance anyway. Your card provider may even encourage it by sending you blank personal convenience checks that resemble something from your checking account. But actually an extension of your credit line. Those no pre approve needed or hard checks to your credit report. That might be okay once in a while if you're hard up for a few dollars in a pinch. But since it's treated like a cash advance, you get hit with interest rate about 20% or more on top of existing credit card APR, the extra fees into the account, it can take in impact on your wallet, if you're prone to carrying a balance month to month. Because if you do that cash advance and you have a $5,000 balance, even though you may pay extra thinking you're paying back to cash advance and reality are not you got to pay off everything that was on that card before you took the cash advance. Therefore the credit card company is going to get a higher rate of interest for a longer period of time. Do not use a credit card for a cash advance. Unless you have a zero balance and you're able to pay it back fairly quickly. Like 30 days or less. You are better off creating a an emergency fund to do these things. Emergency Fund is nothing but a savings account that you put money in, you build it up. So something bad an emergency would happen no matter what it would be. You'd be able to pay it without creating new credit, which is what your plan is on a debt reduction. You're trying to get out of debt. You're trying to reduce your debt. You don't want to take high interest rate high risk loans to do so. I'll be back in one moments from my final thoughts. If you listen to this podcast on an app, please find rate and review and please rate, reduce debt increase If you know anybody to my benefit Please refer them to this podcast. You can find it on Facebook, and on all other apps. Why did I talk about these types of loans? Well, because there are a lot of people out there who don't understand what they are, and why they are so bad. If you are trying to reduce your debt, he got to remember, you got to stop creating new debt, quit using credit cards, quit borrowing money. That's step number one. Step number two is make the minimum payment on all your credit cards and all your debt. Step number three is set up a savings account an emergency fund, and put money in there and have a minimum of at least 500 or $1,000. And then you're gonna over time build that up. And once you have that amount in there, you keep putting your money in there, until you have two or $3,000 in excess of your emergency fund, then you're gonna take that money out and apply it to one of your debts, and pay it down. Like a big lump sum. That's the basis of my debt reduction plan, it's never gonna change, you have to stay the course. If you serious about reducing your debt, no matter how much money you make, no matter how much debt you have, this system will work for you. Granted, I'm not telling you everything, you still should be doing a budget. Because if you don't know how much money you got coming in, how much money you got going out, I as a minimum on a monthly basis, you're not gonna know how much money to put in your savings account. He just can't transfer a random number to a savings account and think you're building it up. Because if you put it in a savings account, and then a week later, pull it out the pay bills, he didn't put anything in there. So get your budget, have a debt reduction plan in place. Be serious about it, stay the course, know your options on borrowing money, avoid the places that are gonna try to rip you off. You got to look at the interest rate. You got to look at the fees. You got to look at how they compute the interest you got to look at if there's an early payoff penalty. That's like whenever I got a loan, that's the first thing I asked, Can I pay it off early? Are you gonna charge me a fee? My last mortgage I had. I said if you pay it off in the first three years, you got to pay $300 fee. Now the fee $300 wasn't all that bad. But luckily, I didn't pay it off in three years. So I didn't, I didn't pay it off in like five years. But I didn't have to pay that thing. But I at least I knew about it. It could be a percentage. Also, if it's 10% of what you borrowed, could be significant thing. So know what you're getting into before you sign on the dotted line. A pawn shop loan is a bad thing. Pawn stop sale is not the best thing. That is not the worst thing. He could use a pawn shop to earn to sell them something to earn some quick cash to help you get by through a month. Eventually you're gonna run out of things to sell unless you're out there looking for stuff that you might be able to take to a pawn shop to sell it to stay away from the Malone's because the pawn shops are in business to make money. So if they're gonna make money, they're not going to give it to you. Card title loans, that choice because not only could you lose your car, and if you lose your car, how are you going to get the work, if you can't get the work, how you gonna make money, how you gonna pay or your debt is a vicious cycle, and it's not going to get any better. So don't dig yourself deeper in the hole by agreeing to a loan that's going to charge you high rates of interest, high fees and make it difficult for you to pay off. You don't need any more difficulty in life. Need to keep it simple. And stay the course. Quit creating new debt. make the minimum payment on all your credit cards and other loans. Get emergency fund get $1,000 in emergency fund. And once you achieve that you're ready to move on to the next step. Creating a budget tracking your expenses That's about it. Once you get all that under control, you're gonna be your finances will become easier and easier over time. And you're not gonna have any major surprises or problems in your life as far as finances are concerned