Yahoo Finance Desperate times: The 3 most dangerous money moves right now
Overnight it feels like our money mode has changed.
Price rises in everything from petrol to petite leaves are causing us to tighten our belts, shut our purses and lock down our financial lives.
And for some, the economising might not even be enough to combat cost-of-living increases.
Read more from Nicole Pedersen-McKinnon:
If things are suddenly financially stressful in your household, there are three money moves that could ultimately make it far worse.
Danger 1: Spending money you don’t have
Around 30 years ago, the above would not really have been possible. Which came with its own challenges.
But everything from credit cards to fancy fintech services now allow us to spend money we don’t have.
After the, say, 55 days interest-free on a credit card, a typical interest rate is 18 per cent. That hasn’t budged for more than a decade, despite both the credit crack-up and coronavirus pushing official interest rates dramatically down.
But financial innovation has also provided some newer, ‘shinier’ ways to spend more than you earn. To ‘help’ the cash-strapped.
Far from ‘helping’, these products are opportunistically, entrepreneurially cashing in.
Buy now-pay-later services - a variety of which have sprung up - let you do literally that.
Depending on the service, you might be able to spend $1,000 and repay it over a period of, say, eight weeks.
The main danger is that it is possible to sign up for multiple services, some even without credit checks.
It is also possible to link some services to a credit card, which turns short-term delay-pay into long-term debt.
Yes, potentially at that 18 per cent mentioned earlier.
A further ‘funky’ fintech product to be wary of allows you to access your pay early, dollar-by-dollar and almost day-by-day.
If a third-party company advances you money before your employer company does, you will pay for the privilege. Full stop.
What it means is that you will ultimately have less. And you’ll get behind in the same way with ‘your pay today’ as with buy-now-pay-later: you’ll have already ditched your dosh before it’s due to be paid.
Danger 2: Falling prey to loan sharks
This is a more desperate move still and one that could quickly push you into debt spiral.
Payday lenders, like the fintech firms above, fall through the cracks of the consumer credit code because they do not technically charge interest.
They instead charge fees. And in this case, they could work out the equivalent of 400 per cent annual interest.
Strangely, the former government promised a crackdown on these unconscionable outfits, but the recent election day marked 2,000 days with no change. This meant they thrived as people barely survived in the COVID economy.
We will see what happens under Labor.
One of the difficulties with the delay is that payday leaders - which are more accurately known as loan sharks - are now hard to spot.
They have elaborate and legitimate-looking advertisements across online, radio and TV.
A question to ask to tell is: What is the maximum amount I could potentially fork out?
You need to know precisely what you’ll pay to play.
Danger 3: Hurting your financial future
It is of course the last thing that sounds logical, but if you are going to struggle to meet a bill, contact the provider of that bill before you delay or default on it.
All companies with customers - utilities and telcos through to insurers and lenders - must now have dedicated financial hardship departments.
Coronavirus conditions also made you doubly as likely to get leniency through these departments. We are talking payment plans or even temporary reprieves… remember the mortgage repayment holidays issued at the peak of the pandemic?
The alternative is possibly the biggest danger you face right now… a credit report that is marked and marred.
If you are more than 14 days late on a credit repayment of any kind it is recorded on your credit report for two years.
If you are more than 90 days late on any other type of bill, this is a blot on your record for five years.
Either or both will push down your credit score - crucial to getting your next loan and even phone - for that time.
Your credit score is precious and must be protected.
Your future depends on it
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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