With all the talk these days about Payday loans, banks have jumped on the band wagon touting the negative things about Payday loans.
Yet if we pull back the curtains on the banking industry, are they really any better? Washington Mutual, yes, my former employer offers almost everyone who opens an account a $100 overdraft limit.
If your checking account is handled well, it quickly increases to high amounts, ranging from $500-$1500 on average for the accounts I worked with.
This simple ‘overdraft limit’ allowed a consumer to make one small error in their checkbook register and bounce multiple checks which were in turn paid by the bank. The sneaky part is they were paid into the negative up to the limit of that overdraft limit and charge a large fee for each item that was presented.
Daily I viewed accounts that had been charged $100 or more in fees, and the customer wasn’t aware of it for several more days until the notice arrived in their mail box.
Is this any different than what a Payday Loan company charges? The main difference that I see is the consumer is aware of the fees up front! Not after the fact!
I suspect if we did the math, these overdraft charges far exceed the calculated interest rate on a Payday loan.
An overdraft account is not exclusive to just Washington Mutual. I contacted several large banks to comparison shop products and was surprised that most financial institutions offer a similar program. At the time I used WAMU, Wells Fargo, Bank of America, and US Bank.
As a consumer, you need to be aware that these accounts are out there and you probably have one without realizing it. Automatic Teller Machines also known as ATM’s often allow you to access those funds.
The average cost of an overdraft or returned item fee ranges from $25 to $35 dollars. The actual cost of the overdraft or returned item to the financial institution is well under $5. Most financial institutions have trained their staff to tell you the following if you complain:
* We only reverse fees if it is a bank error.
* The fee is only there as a deterrent, to encourage people not to overdraw an account.
* Perhaps if you have a line of credit attached to your account you could avoid this in the future.
The last was always my favorite. Bank employees have been trained to be excellent sales people over the years, and the last line will usually clinch the deal.
Although most people don’t realize it, a ‘free’ checking account at Washington Mutual was the biggest money maker for the company when I worked there. It well surpassed income from loans.
As a consumer, use caution with a checking account. We are becoming a checkless society, but even if you don’t write checks you still need to maintain a check register and balance it.
Balancing your checking account each month, as well as your credit card statements may protect you from overdraft and over limit fees. It will also help you stop identity theft in its tracks. The average person that regularly checks over their accounts each month is much more likely to notice something wrong and get it reported as soon as possible.
Financial problems are growing for many consumers, particularly because of credit cards. With paralyzing interest rates, credit cards certainly are not the type of short-term debt that anyone wants to be taking on in this economic climate. With many other borrowing options out there, it might be worth looking at other ways to take care of people’s purchasing and payments.
However, in the meantime, there are other ways to meet repayment needs. While many desperate people employ one credit card to repay another, this failed strategy only seems to end in more financial problems, and often, more financial problems. Thankfully, consolidating loans can make the entire repayment process simpler, more manageable and more effective. While there are other methods available, few compare to debt consolidation for simplicity and stress-free use.
Debt Consolidation Loans Have Lower Interest Rates
Record-low interest rates, in fact. With credit card interest hovering in the high teens, consolidating loans can ease the repayment process, and prevent anyone from paying hundreds of dollars in extra arrears every month. By employing a low interest consolidation loan into their repayment strategy, the total amount that people have to pay per month will decrease dramatically.
Multiple Debt Management is Difficult
For people juggling three of four different arrears every month, consolidating loans can mean a reduction in wasted time for finance management, an increase in understanding of financial strategies, and an almost completely automated repayment process. This could just be the solution to the time and stress problems for those who are tired of juggling multiple lines of credit.
Consolidating loans can also be very beneficial to those who are managing just one line of credit. Through this option, people can make repayments take up significantly less time.
Using Debt Consolidation Means Longer Payment Periods
For those who have got short-term costs that need to be dealt with, taking care of extra credit card bills and car payments is the last thing that they want to be troubled with. By extending the repayment period of their arrears, all the while decreasing individual payment amounts, debt consolidation can dramatically decrease the amount of money that people have to spend every week. This is great for those hoping to ease the blow of tough payment periods, those who want to manage cash flows in expensive weeks, or even those who use their savings interest to pay off their financial obligations incredibly slowly
Consolidating Loans Improves Credit Ratings
People who have got a poor credit rating and want to improve it can benefit from consolidating loans for their student debt. College graduates that do not yet have a credit rating can benefit from this option as well. This financial management strategy can mean that their rating increases without them having to use credit cards and other forms of credit to establish themselves. A good credit rating is absolutely essential for purchasing a home, investing in specific markets or buying an expensive vehicle, and building it up early is a great way to ensure financial freedom in the future.
Consolidating loans provide a number of benefits to those struggling with managing their financial problems. Apart from simplifying their problems and their stress, those who take on debt consolidation loans can be subject to lower interest rates and longer repayment plans.
Consumers used to select a credit card based on interest rates and credit limits. These days, consumers are applying for credit cards for the add-on perks offered. Airline charges is one area currently being targeted by many credit card companies.
American Express is one example of a company using reduced airline fees as an attractor. Card holders can apply for rewards covering baggage fees, change fees, pet fees, and in some cases, on-board snacks. Other credit cards can help with access to the airport lounges or provide elite boarding options.
Finding the Credit Card that Fits
There are several online sites that help consumers research credit card perks. CreditCardGuide.com and CreditCards.com are two sites that provide comparison charts for major credit cards. Both sites list the cards that offer air miles and frequent flyer credit cards as well as those cards that give cash back rewards.
Not every consumer will want the airline perks, instead preferring the cash back and other types of rewards. The Chase Freedom Visa card is one of the cards that offers cash back for purchases: some offer $100 back with $500 in purchases. Other cards offer points accumulations that card holders can redeem for items online such as flat-screen televisions and other electronics.
These are just a few examples of the cards and perks listed at the comparison sites. It’s worth the time to compare the major credit cards before applying. The research can help match the card to the consumer’s lifestyle and needs.
Low Interest Rates Still Matter
Interest rates still do matter when shopping for credit cards. If the card’s interest rate is higher than others, getting the airline perks may not be worth it. Also look at payoff options. Some credit cards require larger monthly payments than others. And, look at the late fees assessed for those payments that get posted late.
The consumer still lives and works using credit cards for all types of purchases including airfare. Why not use a credit card that might earn enough rewards to pay for some of those add-on airline fees? Banks, credit unions, and many other types of lenders are competing hot and heavy for card holders, making it a good time to make the most of using a credit card. Bottom line, do the research to reap the benefits of using a credit card and it may help get that 52 pound bag loaded onto the next flight for free.