Using Check Cashing Agencies Can Land You In Jail

As more and more layoffs, pay cuts, and mortgage resets plague the economy, people are finding themselves increasingly financially stressed. Some of these people are going to check cashing companies, writing personal checks, and borrowing cash against those checks.

This is an extremely dangerous thing to do.

Here is what check cashing companies bury in the fine print of their contracts: if the check is over a certain amount - it varies by state - and you do not pay them back in full, with interest, by the due date, they can and usually will report you to law enforcement authorities for writing a bad check.

This is a CRIMINAL charge. Not a civil charge. You can be arrested for writing bad checks. You can go to jail. You can have a criminal record forever.

All because you borrowed money and were not able to pay back your debt in full within a couple of weeks.

It’s the modern day equivalent of debtors prison.

If you miss a credit card payment it will be reported to credit bureaus and likely to collection agencies, and they can get a civil judgement against you, and possibly attach your wages.

However they can not take you to jail for missing a payment.

You can go to jail for not paying back a check cashing agency. It is never safe to use them because if there is any emergency that causes you not to be able to repay them, you are risking your future for a few hundred dollar loan.

So if it’s a choice between missing a credit card bill or a utility bill or a cable bill, or using a check cashing agency - the credit card and utility companies and cable companies all will work with you. The check cashing agency will not.

Treat the Debt Disease, Not The Symptoms

If you have a wound that’s gushing blood, and spray pain reliever on it, you have treated the symptoms. You have not treated the problem itself.

Likewise, when you are in debt, it can be very easy to treat the symptoms and not the disease.

Here’s an example. The problem is, you owe a lot of money and your monthly payments are so high that you simply can’t pay off all of your bills.

One possible solution would be to get a low interest credit card - assuming you can even qualify for one in today’s tight credit market - and use it to pay off all of your bills.

Another option would be to take out a home equity loan and use that money to pay off all of your bills.

A third option would be to get a debt consolidation loan and use that to pay off all of your bills.

These are all potentially really bad solutions to your debt problem - because they treat the symptoms (you owe a lot of money) and not the problem (you don’t know how to budget and you spend more than you earn.)

Even worse, when you pay off all of those credit cards by borrowing more money - you now have to pay off the home equity loan or the new credit card that you put all your old debt on…AND…you have a bunch of credit cards with zero balance. Which means you are very likely to go out and run up your credit card balance again.

BEFORE you even consider taking out a loan to pay off your bills, you must sit down and develop a realistic budget and stick to it. And you must plan for what you do after you pay off your bills. Put your credit cards away. Put them in a safe deposit box if necessary.

Otherwise, by treating the symptoms and not the disease…the disease will only continue to get worse.

These Habits Get You In Debt

Staying out of debt isn’t generally just matter of luck. It’s a matter of habits - good financial habits versus bad financial habits.

Habits that get you in debt include:

1.) Using a charge card for anything other than emergencies…unless you can pay your charge card off in full every single month. Once you get into credit card debt the high interest payments make it very hard to get out.

2.) Not having a budget and a plan. You will get into debt quickly and have a very hard time getting out if you don’t know: how much your total monthly expenses are, and how much your monthly earnings are; and how much you are actually paying in bills every month. If you owe more than you earn, this is not an impossible situation. You have options. You can contact your creditors and negotiate lower payments, you can take on a second job, you can if necessary declare bankruptcy and start fresh.

3.) Not including “savings” as one of your monthly bills. As the old saying goes, pay yourself first. Make that an absolute priority. Especially these days when job security is a thing of the past, setting aside a few hundred dollars a month in savings is a necessity, not a luxury.

4.) Being unable to distinguish “needs” from “wants”. You do not NEED a salon haircut, a visit to the manicurist, a night out at the movies, an expensive vacation, a luxury car, a brand new designer outfit. You need food, shelter, utilities, transportation, and clean clothes that fit.

5.) Hiding from your debt problem. This will lead to late payments, missed payments, ruined credit, and it will make it much harder for you to climb back out of the debt hole than if you had simply paid your debts in the first place.

The Worst Things That You Can Do To Your Credit Score

Maintaining a good credit rating is more important than ever in this economy, because loan standards have tightened up considerably. A credit rating that would have been considered good even a few years ago is now likely not enough to get you approved for a home loan or student loan or car loan.

And if your credit rating is below the mid-700s, you are likely to pay higher interest rates on all of your loans.

Here are some things that will seriously harm your credit:

Making a late payment. It is a good idea to send your bills off at least a week before they are due; ten days if possible. One single late payment can drop your credit score by 100 points.

Charging all of your credit cards to the max. Or even just carrying too much debt on them. Do not charge to the limit; try to keep the amount that you have charged to no more than 30 or 40 percent of your credit card balance.

Applying for new lines of credit: This will lower your credit score.

Declaring bankruptcy. This will play havoc with your credit scores for up to 10 years. It is an absolute last resort.

Applying for high interest, unsecured loans.

Closing down old lines of credit. If you must shut down a line of credit do it on your newer credit cards.

Applying for department store credit cards.

The Only Way To Get Out Of Debt

What causes us to get into debt? Spending more than we are earning.

So in order to stop getting deeper into debt you are going to have to start taking some drastic steps.

First of all, you need a true, accurate picture of how much you owe. Yes, this is painful, but you will never get out of debt if you don’t figure this out.

You need to figure out the total amount of debt you owe, and what your minimum monthly payments are. Then you need to figure out your monthly living expenses - for mortgage or rent, utilities, garbage pickup and water, household maintenance, gas or bus fare, barbershop, groceries, medicine, life and health insurance, etc.

Then, you need to add that all up.

And now you finally have a true picture of your finances - so it’s time to make some decisions.

Do you spend more every month than you earn? Something’s got to change. Some people have wiggle room - they can cancel the cable TV, stop eating out at fancy restaurants, quit the gym membership they never use, brown bag their lunch instead of buying lunch every day.

Some people have cut out every extra expense and STILL aren’t earning enough to cover everything they owe. At that point, you’ve got two options: Take on a second job (or find another way to earn more money), or reduce your monthly payments.

To reduce your payments, you have several options. You can negotiate directly with creditors, you can go to a non-profit credit counseling agency - only go to one that is approved by the National Foundation For Credit Counseling, because there are a lot of ripoffs out there! - or, worst case scenario, you may need to consider declaring bankruptcy.

But one thing is for sure - if you keep going the way that you’re going now, you will only sink deeper into debt.

The Most Important Question To Ask BEFORE You Apply For Credit

So there’s a new videocamera that you absolutely must have, or you need a new work wardrobe, or your old TV just isn’t cutting it any more, or your family hasn’t been on vacation in YEARS and you are looking longingly at cruise manuals.

Here’s the question that you need to ask yourself before you go into debt to finance your purchase: What’s going to be different about my finances a year from now? Or even six months from now?

Here’s why you need to ask yourself that question:

Whatever you are paying to finance, is going to be second-hand, or consumed and forgotten, as soon as you pay for it. Next year you will have a used video camera, last year’s model of a big screen TV set, or last season’s designer clothing which are now worn and secondhand. And you will still be paying for it every month, WITH interest.

And guess what? Now you need a NEW toy, and new clothes, and another vacation, and another TV.

But odds are very good that you still are earning the same salary and still have the same basic expenses. Or in this economy, you may be earning LESS and spending MORE - gas prices go up, food prices go up, companies go out of business, new jobs pay less, Christmas bonuses don’t come through and pay cuts are required…

So all that you achieve when you put something on credit is to dig yourself deeper into a financial hole.

Are you going to take on a second job so that you can quickly pay off that debt? Do you have a big chunk of cash, or a bonus from work, coming in, that you DEFINITELY can count on to pay off that debt?

If your financial situation is going to be the same in six months or a year - do NOT take on more debt, because it becomes a neverending cycle with you giving up future savings and security to support the owners of credit financing companies, not yourself and your family.

The Envelope Method

To get out of debt, you need to come up with a method of budgeting, and stick to it.

One popular method, that has been around for decades, is the “envelope method”.

First, you make a list of all of your expenses - the expenses that you would normally put on a debit card or credit card.

For these expenses you should:

Make a list of the different categories - like groceries, entertainment (movies, lunch with friends, books, magazines, Starbucks), gas, personal grooming (hair, nails),

Figure out how much you will spend in that category in a week, two weeks, or monthly. Two weeks can be a good way to do it, because most people get paid every two weeks.

Put that amount of cash in each envelope.

If you run out before the end of the two weeks - THAT’S IT. You have to do without until the next time period starts.

This forces you to really acknowledge how much you are spending, unlike when you use a debit or credit card. And also unlike a debit or credit card, when you run out of money, you can’t steal from another category - so you will realize that you are spending more than you budgeted.

Then you have to decide if you need to increase that amount,  or learn to live within your budget, especially until your debts are paid off.

The envelope system is one of the most popular budgeting systems there is for a reason - it’s simple and it’s effective.

The Debt Danger Zone

To get out of debt, you’re going to need to figure out what got you into debt in the first place.

Yes, you may have had some bad luck. You may have been laid off, you may have bought more house than you can afford and then found yourself unable to sell it, you or a family member may have been hit by huge medical bills.

But odds are pretty good that’s only part of the problem.

If you’d built up an emergency savings cushion of 6 to 10 months worth of living expenses, it is very likely that you wouldn’t be facing these issues.

So what were you spending money on when you should have been saving money?

Do you spend too much money on luxuries that you think you absolutely must have, like expensive salon visits, designer clothes, electronic toys, pricey vacations?

Do you spend too much on your children, buying them brand new items the minute they hit the shelves at stores?

Do you spend too much on convenience, like having dinner delivered, maid service, lawn service, et cetera?

Do you simply plan poorly, always meaning to set money aside at the end of the month, rather than designing a savings plan and always sticking to it?

Look at your past spending patterns to determine what lifestyle changes and priority changes you need to make - or you’re likely to be doomed to debt forever.

The Bad Economy Can Make Budgeting Easier

Up until very recently it seemed like everyone was playing the game of “keeping up with the Joneses.”

People bought far bigger houses than they needed to. People bought houses when they had no money for down payments. People who wanted to live a more affluent lifestyle than they could afford just borrowed against their home equity. What the heck, home values only go up, right?

Then the housing market crashed and took the rest of the economy down with it.

The good news? There is no longer the same intense pressure to keep up with the Joneses. In fact, being frugal is now in. Coupon clipping websites are seeing record traffic. High end stores are suffering.

Of course, it shouldn’t matter what other people think and it shouldn’t affect your lifestyle and spending - but it almost always does. A couple of years ago people who didn’t have a McMansion and a new gas guzzling SUV were looked on with pity.

Now they’re looked on with envy.

Smart Money Moves That Hurt Your Credit

Common sense would tell you that if you are trying to fix your credit score, you should cancel your credit cards, right?

Unfortunately, wrong.

This hurts your credit score, and in more than one way.

Credit scoring companies examine your credit history, and they want to see older lines of credit because they want to know how you handle credit. If all of your lines of credit are brand new, they feel they don’t know enough about you and your history and are going to view you as more of a risk than someone with a long, well established line of credit.

Also, it reduces the amount of credit that you have available. That seems like a smart thing to do, right? Not in the eyes of the credit scoring companies. They want to see that you have charged no more than 30 percent of your credit limit (for a perfect credit score).

Okay, so how about never charging anything? That should be a smart money move, right?

Again, what’s good for you and your wallet and your budget is not necessarily good in the eyes of the credit scoring company.  If you never charge anything - they don’t know what kind of credit risk you are. The ideal solution is to charge, but to pay off your balance every month, on time. Or at least pay off most of your balance.

Okay, so if charging nothing is bad, then you should charge a lot, right? Only if you can pay off most of it and if you don’t charge too close to your credit limit. If you have a $10,000 credit limit but have charged $9,000, this will severely hurt your credit score.

The best thing to do to get a good credit score is have a couple of credit cards that you pay off every month, on time, and that you do not close. Let those credit cards age, keep your balance low, pay your bills early or on time, and you will be the golden child in the eyes of credit card companies.