Payday pitfall to avoid at all costs

Okay, we've all been there.  Payday is next week, but you have an unexpected bill and you need money now.  Luckily (not) for you, there are a plethora of companies willing to give you an advance on your next payday.  They make it seem simple, easy, and smooth.  You take in a pay stub or two, provide them with your account number and routing number, and they'll electronically deposit some money into your checking account quickly.  You'll sign a repayment agreement and walk out with the money you need when you need it.  Can't lose, right?  WRONG.

Payday loans are the arch nemesis of any person who is trying to build or establish a strong financial background.  And the companies who provide them are often sneaky and underhanded in their business practices.  I can't stress it enough... payday loans should be avoided at ALL COSTS.  Why?  Well, there are a few reasons...

1) Cost
Alright, we're just talking financial cost, here... not including the safety, security, and emotional costs you may pay if you fall victim to the payday loan pitfall.  When you advance the money, there is a service fee charged to perform the service.  Depending on the payday loan company, this fee can be upwards of 50% the original transaction amount.  So, if you borrow $200... you could end up paying $100 out of pocket... just to receive the service.  Even the least expensive payday loan companies charge something close to $5 for every $20 advanced... so you pay a quarter of what you borrow, which is just ridiculous.  That's like paying 25% interest on a loan... who would do that?

2) Concept
Payday loans were created and marketed originally to help assist customers in emergency situations.  Almost ALL payday loan companies include in their marketing that their services are meant to be used on a "short-term" basis.  Meaning... emergencies.  But that is not the reality of how payday loans work.

Let's think about this.  In today's economic climate, the majority of Americans are living on a tight budget... paycheck to paycheck, as they say.  I do.  Almost everyone I know has to work to make their money last until their next payday.  A good chunk of the people I know aren't even able to make ends meet... they have a 2-3 day lag where they can't buy anything, because they've spent all their money and don't get paid for a while.  That's the reality of our situation right now.  So it's safe to say that we NEED our paychecks to be as full as possible in order for them to last us to the next one.

Let's say you get paid on Friday, and your check is $700.  You live payday to payday, like I mentioned above, and you usually have a 2 day lag between pay periods where you run out of money.  That means that your $700 paychecks are already too small to cover your needs.

Now, let's say it's Tuesday before your payday and you have a bill that's due now.  You think you're safe to borrow the money from next payday, so you take a loan for $200.  The processing fee for this payday loan is one quarter, so you owe them $50.  When you get paid on Friday, they are going to automatically take a payment of $250 from your paycheck... so now, instead of $700 (which is already too small), you are starting your new pay period with only $450.  How on earth are you going to live for two weeks with only $450?


Well, see, that's what the payday loan companies LOVE to see.  They've already won you over... now, because you took the loan, you can't afford your bills.  So... you need to take another loan.  You call them back and borrow $250... enough to get you back to where you would normally be.  Sounds fair, right?  Sure... but fast forward two weeks when you get paid again and your $700 is now only $387.50.  Not enough to get you though.

It's a snowball... they know your weakness, and they take complete advantage of it, digging you into a hole where you are literally DEPENDENT on payday loans in order to survive.  (In my job, I'm not kidding, I have seen customers who are using 5 payday loan companies simultaneously and have gotten themselves so far behind in the snowball that it would take them over 10 FULL PAYCHECKS just to pay back the amount they owe.  That seems extreme, but it is absolutely the reality of the payday loan world.)

3) Manipulation
I've mentioned it in other blog posts, and you'll hear me talk about it a lot more, as it is one of my biggest banking pet peeves.  It is called ACH (automated clearing house)... it is the electronic payment of a bill from your checking account.  Basically, how it works is like this:  you provide your checking account number to a company and they go in automatically to pay your bill for you.  It is marketed as easy and convenient for you, because you don't have to remember to pay your bills, but it is actually an incredibly dangerous practice that can get you into tons of trouble- especially if you are re-building or developing a strong financial portfolio.  And payday loan companies are notorious.

They don't need your permission... they already have your account number.  Remember... you gave it to them so that they could electronically deposit the money into your account.  In the fine print of the agreement, if not explicitly stated when you take the loan, they will use the same information to electronically TAKE your payment from your account.  This wouldn't be a problem if companies were legitimate and ethical... but, let's face it... most are not.

Here's an important thing to remember: even if you are very diligent about asking the right questions... even if you know for sure what your contract with the company is... that does NOT mean that they will follow through.  Let's say you agree to make two payments of $200 on the 1st of the month and then on the 15th of the month.  Well... the bank doesn't know that.  Your financial institution has no idea what your contract is with the merchant.  So the payday loan company can request, basically, whatever they want... and the bank will not know if it's wrong.  Banks have to assume, because the merchant has your account number and routing number, that you have agreed to the payment they are trying to take.  Your bank absolutely cannot protect your from merchant misbehavior.

So, the company comes through instead and collect the full $400 on the 1st of the month, which you had not budgeted for.  You are now overdrawn in your account and have to file a dispute with your bank... which can take 10-30 days to be resolved.  You may have other bills returned in the meantime, which means more overdraft fees... and potentially, fees from those other merchants as well.  In a worse-case scenario, I've seen a customer whose mortgage payment was returned because of a payday loan situation and her the foreclosure process was started on her home before the situation was resolved.

Is it wrong?  Absolutely.  Will the bank help you?  Yes, they will.  But they have to go through certain legal processes, so it is often not instantaneous.  The only way to prevent this is to avoid the cause all together.

4) Fraud
Ok, I'm a fraud banker, so this kind of thing really irks me... it is the OTHER horrible effect of giving these places your checking account number.  Fraud.  Well, technically, it's not fraud because it is disclosed to you i the difficult-to-find and impossible-to-interpret fine print of the agreement you sign when you take the loan.  But most banks consider it fraud and will investigate it as such because it is so overwhelmingly prominent (and sickening).

Here is a view of the privacy policy of one particular payday loan company.  I will not name the company, but I will tell you that this particular privacy policy is pretty much industry standard, so you could expect similar wording no matter what company you choose...

Click here to see larger image.

Here's what I want you to notice... this privacy policy states that they will share your checking account information with third party merchants.  They call them "affiliates", but they are... basically... other companies who you have not agreed to work with, who you do not even know about, who will now have your personal account information.

And, just like I said before, if a merchant contacts the bank to take a payment from you and they are able to provide your account number... the bank has NO IDEA that you didn't actually do business with this company.

At my job, I frequently see customers who have checks presented on their account... checks that were created electronically, not checks that the customer wrote.  This is a normal practice for these "affiliates"... instead of taking payments electronically, they will create a paper check to collect against your account.  (Hint: Why would they do this? Because they know that banks cannot legally file a dispute against a paper item.  They know that the bank can only file fraud... and they know that the fraud procedures are longer and more intense.  They are hoping that you, as the customer, will choose not to file a claim against them because it will seem like too much work for you.  Then, not only do they get the money they already stole from you... your account stays open, so they can continue to take more money from you.)

Here's the problem:  The microsecond you give your account information to that payday loan company... it's gone.  And your bank has absolutely no idea how many companies may have it.  So, when this happens, the bank's only recourse to protect you is to close your account completely and open a new one.  This, as you can imagine, can be incredibly difficult and time-consuming, depending on how many companies use your account number.  Direct deposit from your employer, social security, etc... all of that has to be changed.  And, to get back the money that was stolen from you (IF the bank is even able to recover it) can take up to 90 days.  So that's 90 days that you don't have your money.  The fraud process also usually consists of paperwork, often times including a police report (which, if you've worked with the police department before, can range from very easy to impossibly difficult to procure).

~~~

There is a lot of work being done to make payday loan companies more accountable and to create more transparency.  But... these companies are very good about staying inside their legal boundaries while still manipulating their customers and stealing their money.  The ONLY way to keep yourself safe is to avoid these companies completely.

If you find yourself in an ACTUAL emergency and you need some money to get you through, check with your financial institution.  Many offer a similar service, if you meet a certain set of qualifications.  The bank's service is usually less expensive (although still very costly) and safer.  It doesn't involve giving out your account number, so you don't have to worry about fraud.  The terms and conditions are usually easier to understand and less likely to be manipulated.  You still absolutely have to worry about falling victim to the snowball effect.  Most banks have limitations on how many advances you can take to help you avoid the snowball... but those limits can sometimes be even worse... if you've become accustomed to using the service and then, all of a sudden, you can't use it anymore... how will you pay your bills?

Ultimately... especially if you're re-building or trying to create a strong financial footing... you NEED to avoid payday loans.  Completely.  Don't even consider them.  That is the only way to be completely safe.

Secrets to success: Loans

Have you ever looked at your auto loan statement and thought "wait... I pay $400 a month... how is my balance not going down faster than this!?!?!"

Sometimes it can feel like our success is being sabotaged... like we don't have enough "insider information" to understand how our money works.  Every once in a while, wouldn't it be nice if there were just some easy, practical, REAL tips that could help the average lady keep her money in her pocket?

Well, when it comes to loans... there ARE a few such tips, and I'd like to share them with you now.  These tips can be applied to:
     -auto loans
     -student loans
     -mortgage loans
     -home equity loans
     -unsecured or secured personal loans
     -many revolving personal lines of credit (but NOT credit cards)

These tips can be applied to any loan... no matter the balance owed, the rate of interest, the maturity date.  You can apply these tips to every loan you have and you will see positive effects... I promise.  We'll start with the simple ones (read: the ones that don't involve math).

1) Avoid financing through the dealership (auto loans only)
     Dealerships are great about making things seem "easy" for you... they'll even take care of financing, so that you don't have to find a bank that's willing to give you a loan.  They butter you up even more by guaranteeing that they will get you the lowest rates possible!  It's like one-stop shopping for you... which is why a large majority of people agree to finance through the dealership.
     But there's a lot more that they aren't telling you.  And, regardless of how sweet the deal may seem, I will guarantee you that you could ALWAYS get a better deal.

      Here's the scoop.  Dealerships work with, generally, 3 or 4 banks to provide financing for their customers.  When you apply for financing, the dealership gets rate quotes from each of those banks and then (generally) chooses the bank that offers the lowest quote.  Let's say that rate quote is 5.5%.  Then (here's the clincher), before they present you with the offer, they tack on an additional .5% to 1%.  They come to you and offer a rate of, say 6%... promising that they are offering the lowest rate possible.

       It's true, because they chose the lowest rate quote they were given.  But it's false... because the dealership ALWAYS adds a percentage.  The base quote, given by the bank, of 5.5% will always be paid directly to the bank.  But that extra .5%... that will get paid to the dealership.  That's a HUGE portion of a dealership's revenue, which is why they push you to do in-house financing... they need that interest money.

     So, how do you beat it?  First, check with your bank.  Many times you can get lowered rates or "premier rates" on loans because you have a checking and/or savings account with that institution.  If your bank isn't able or willing to finance you, then go to the dealership... let them do all the work and present you with the quote.  Ask them what financial institution you would be financing through, and then WALK AWAY.  Go directly to that bank... generally, if they were willing to finance you through the dealership, they'll be willing to finance you directly.  And you won't have to have that additional interest tacked on.

2) Round up
     Ok, this is easier said than done sometimes, but I guarantee it will make your life easier... in more than one way.  On larger loans (like a mortgage or automobile loan), I recommend rounding to the nearest 50.  (If your minimum payment is $482... just make your payments for $500.)  On smaller loans you can round up less... to the nearest $25, or even to the nearest $10 if that's all you can afford.  But round up.
     The extra money helps pay down your principle balance faster, which helps you pay the loan faster and, in the end, pay less money in interest.  (See the next part for more information about interest...)

  (Note: Check with your financial institution to ask how they process overpayments.  Some banks automatically apply the extra $$ to your principle balance.  Others give you the option to have it applied as principle OR as a credit toward your next month's payment.  Different people have differing opinions as to which method is better... and really, either is just fine.  The important thing to remember is this:  If you bank applies the extra balance as a credit toward your next month's owed amount, your next statement balance will be lower.  DON'T pay the lower amount.  Never forget... with loans, you always have a minimum payment amount.  Even if your statement shows that you are paid ahead, you should stay in the habit of paying your contractual amount every month.  After all, it doesn't help to pay an overage if it's not going to count as an overage...  The benefit to showing "paid ahead", though, is this: if something tragic happens in your life and you need to miss a payment, you can do so without penalty, because you are technically "paid ahead" with the bank.  This can add a level of comfort or safety for some people, and works very well as long as you're disciplined enough to continue making your minimum payments.)


3) Increase your payment frequency
   I learned this technique in training at the bank and thought that it had the potential to save me... a hundred bucks or so on my vehicle loan.  At that time I had about 2 years left on my car loan and owed just over $3,000.  I was already implementing the above 2 techniques, and I really thought I was getting the maximum savings on my loan.  But... by making this small change, I saw my monthly interest amount drop IN HALF.  I paid my loan balance a year ahead of schedule and saved myself over 50% in interest.  This can be used on any kind of loan that uses simple interest... student loans, car loans, equity loans, private loans, and even some mortgage loans.

   Here's the basics that you need to understand.  When you make a loan payment, your bank first pays your interest, which has been acruing daily since your last payment, and then the rest is applied toward your principle or remaining balance.  The key here is understanding that your interest acrues daily.  So, if you make your payment once a month, there are usually 30 or 31 days worth of interest that gets paid... before any money actually starts going toward paying your loan!  Depending on your interest rate, this could be a matter of half... or more... of your payment... not even going toward your balance.

   So, to save yourself some money, an easy solution is to increase the number of payments you're making.  Take your $400 monthly payment and split it in half... make a payment every other week for $200.  Or, cut that payment in four and pay $100 every week.   As long as you're paying your minimum due within the month, it doesn't matter how many payments are made.

    By sending a payment every week (which is what I do and personally recommend to everyone), the bank is only paying 7 days worth of interest at a time, instead of paying 30-31 days.  This means that more of your money is going toward your principle balance at each payment.  At the beginning, you'll probably only see a savings of about 3 days worth of interest- the three days you normally wouldn't have made a payment.  BUT, what you don't see is that those 3 days worth of interest were instead applied to your principle... so you paid your loan down more by... 3 days worth of interest.  Next month your interest will be lower because your principle is lower... and you'll apply another 3 days to your principle...

   It's like a snowball effect.  Each month you are putting more money toward your principle, which cuts down your interest, which cuts down your principle, which cuts down your interest.

   I could go into more detailed information about how to calculate simple interest and explain the mathematical logistics of WHY this technique works... but that can get complicated, and this is already a relatively confusing process to understand.  So I won't.  Maybe in another blog post, somewhere down the line.

   The basic rule is this:  take your monthly payment, split it into four, and pay it every Friday.  Trust me, it will work, and you will save yourself more than enough money to make the change worth the work.  By far.

  (If you want more information about simple loan calculations, or about anything else in this blog, please email me at cylestbrooksconsulting@gmail.com.)

Three banking tools that EVERYONE should use

I work for a bank in a call center type of environment... so I interact with customers regularly, repeatedly, on a daily basis.  On average, I talk to 90 customers per day, 5 days per week.  I've had this job for 17 months... so I have talked with approximately 30,600 customers in my time with the bank.

In my experience, I have compiled a list of three tools offered by *almost* every bank in the country that are under-utilized.  These are tools that the bank offers its customers to help them be more successful.  There is no benefit necessarily to the bank when a customer uses these particular tools... except that they lead to stronger financial customers, which is (ultimately) better for the bank.  But mostly... these are tools for YOU to use.  Use them.

(Note: If your bank does not offer these services, or if they charge a fee for these services, find a different bank.  No, I'm not kidding.  These are tools that are offered, for free, by almost all financial institutions.  If you need banking suggestions... let me know.  But really... don't pay money for these tools.  Ever.)


1) Checking Account Register


What it is:
For those who don't know, a Checking Account Register ("check register", for short) is a small booklet that looks like this:

In it, you write down all of the purchases you make, any deposits you receive, and keep a running balance of how much you have in your bank account.  It was more popular in the past, when people wrote lots of checks... because it took several days for checks to clear your account after you wrote them... and this was a good way to remember all the checks you had written.

Why it works:

Even though check writing is less popular now, a check register is still unbelievably helpful... especially for people who have had trouble budgeting or balancing a checking account in the past.  By writing down all of the transactions you make, you are able to be in complete control of the money in your account.  Here are just some of the pitfalls a check register could help you avoid:

1. Forgotten checks.  Ever write a check and then totally forget you wrote it?  The check clears your checking account three days later... but, by then, you've spent the money elsewhere and now your account is negative.  Oops.
2. Held checks.  When you write a check, you assume that the person is going to cash it soon.  A week goes by, and you'll likely assume that it's been cashed.  But lots of people, and even some smaller businesses, don't take their checks to the bank for weeks.  Months even.  If you write a check in May and it doesn't clear until August, you're likely not expecting it to come out of your bank account.  But... if you have a check register and you're keeping a running balance, you've already removed that money from your available balance, so you know not to spend it.  (Hint: this also helps you pinpoint when you may have a lost check.  If you send it in the mail and it isn't cashed in 2 weeks, there is a chance it was lost or intercepted in the mail.  This is important because lost checks very frequently lead to check fraud.  If this happens to you, call the person or business to whom you wrote the check.  If they don't have it, call your bank immediately.)
3. Aged debit card purchases.  When you make a purchase with your debit card, a message is sent to your bank that tells them to hold that money aside for the merchant.  With most financial institutions, you'll see that money removed from your available balance immediately.  BUT... that does not mean the money was paid.  The merchant must contact the bank to collect the money, which usually takes between 1-3 business days.  (During that time, you'll likely see that debit card purchase as 'pending' on your account.)  So what happens if the merchant doesn't call the bank to collect the money?  Well, most banks consider a transaction "aged" after 3 business days.  They assume that the authorization was done in error, or was voided, and that it will not be collected.  So, the bank will usually release it back into your available balance... it's like the transaction disappears.  Occasionally (somewhat frequently, actually, depending on the merchant) we see merchants that don't collect on their authorizations for 10 days.  So... you see it "pending" on your account, and you assume it's going to be paid.  Three days later, it is released back into your balance, but you don't realize it because you think it's already been paid.  You spend that money on something else.  Then... when the merchant actually DOES contact the bank to collect the money, you're account is overdrawn.  Sucks for you because you didn't do anything wrong, but it absolutely WILL cause an overdraft fee and it will be considered your fault.  How can you prevent it?  That's right, keep a check register.  Because, again, even if it takes the merchant 10 days to collect their money, you already have it documented and you know how much money you have left to spend.

Keeping a check register is a great way to keep up to date on your budget, if you're using one (which you should be).

How to use it:

On the first line of the check register, write your opening balance.  From there, I've heard that different people find success using different tools.  Here's what works most often and takes the least amount of time/effort:  Keep your receipts throughout the day.  Put them in your wallet.  Then, at the end of the day, take 2 minutes to sit down and copy the transactions from your receipt into your check register and deduct them from your balance.  That way, you wake up every morning and go to bed every night with the security of knowing EXACTLY how much money you have in the bank.

2) Online Banking

What it is:

Online banking is a free tool offered by most financial institutions to help you manage your money better.  As I stated above... if your bank charges you for online banking, find a different bank.  This should be a free tool.

Especially working in bank fraud, I hear a lot of customers who express concern that online banking is not safe, or that it will open up the door for fraud on their checking accounts.  I frequently share this analogy with them.  As I stated earlier, I've talked to over 30,000 bank customers.  On a daily basis, I'd say I talk to at least a dozen customers who have been victimized by fraud because of checks, automatic payments (where you give a merchant your account number to take your payments for you automatically every month), debit or credit cards, and ATM machines.  Dozens.  And yet, in my ENTIRE time at the bank, I've only spoken with ONE customer who had fraud related specifically to her online banking profile.  And I've only worked with a handful more who have had serious reason to be concerned about such fraud.  I maintain the opinion that online banking is the absolute safest method for managing your bank account.

Why it works:

Online banking is amazing.  Really, it is.  It allows you a level of control over your bank account that was never possible before.  Instead of waiting for your monthly statement to come in the mail, you can access a real-time view of your checking account at any time of the day or night.  The benefits to this kind of ease-of-access are unlimited... but here are a few of the best reasons to use this great banking tool.

1. Fraud Prevention.  It used to be you had to wait until your monthly statement came in the mail to review your account activity.  If someone happened upon your account number, they could have 30 days worth of partying on your dime before you even knew that your information was compromised.  Not now.  With online banking you can monitor your account daily (and I *strongly* recommend that you do), so you'll know right away if someone is using your debit card or checking account numbers without your permission.  Knowing sooner means that you can contact your bank sooner to have your account suspended and prevent further fraud.  Your bank will also help you file a fraud claim against the transactions you didn't do, and hopefully you'll get your money back fast.  (Hint:  Why do I say it's important to review your account daily?  Different banks work under different procedures... if you have fraud on your account, it can take up to 90 days or longer before the bank is able to refund you the money that was lost.  That's a long time to be without your money.  So, the microsecond you see something out of place... call your bank.  One fraudulent charge is probably easier to live with than 100 fraudulent charges.)
2. Disputes.  Disputes are a lot like fraud, except not at all.  A dispute occurs when you are working with a merchant and they take more money from you than they are supposed to take.  For instance, your bill is $70 and they collect $170.  That is a dispute... and online banking allows you to catch it sooner.  Like fraud, the bank has procedures in place to help get that money back from the merchant.  However, it's not technically the bank's job to fix the merchant's mistake... so make sure you try to work it out with the merchant directly before asking your bank to fix it.
3. Cross-referencing with your check register.  If you go out to dinner, you may not remember 3 days later exactly how much you paid in tip.  Online banking allows you to cross-reference the amount that was written in your check register to prevent human error and disputes.  Did you write down the wrong amount?  That will throw off your check register for weeks to come if you don't catch it.  Did the merchant charge you too much for your tip?  Your check register will let you know.
4. Review automatic payments.  If you have automatic payments set up on your account, you can use online banking to be sure that those bills get paid on time and for the correct dollar amount.
5. Overdraft protection help.  If you log into your account at 11:02pm and see that you forgot about a payment, and now your account looks negative... you can do a funds transfer from your savings account immediately to make sure you avoid fees.

How to use it:

There are a couple of important things to remember if you're going to use online banking.  First, your transactions will not show up online in the same order that you made them.  So, your online account will probably NEVER look exactly the same as your check register.  That shouldn't matter, though.  Using the two items together should allow you to avoid any type of situation that could lead to fees on your account.

Because processing happens late into the night with most financial institutions, I recommend checking your online banking in the morning- but not too early.  I generally avoid checking my accounts before 6am CST, because there may still be processing happening earlier than that.  If mornings don't work, you can check the account any other time, but I recommend trying to get into the habit of checking the account at approximately the same time each day.  Some people prefer to check it at night, while they are simultaneously updating their check registers, which is a very good idea if you don't want to feel like you're spending exorbitant amounts of time every day looking at your bank account.

3) Bill Pay

What it is:

The motherload.  The holy grail of self-sufficient banking.  Bill pay is, in my personal opinion, the best thing that has come into the banking industry since... ever.  Another free (hopefully) tool offered by your financial institution, bill pay allows you to take complete and total control over your financial life.  I cannot say enough good things about bill pay.

Why it works:

With bill pay, your bank allows you to make payments from your online banking profile.  This offers a whole slew of benefits to you, including:

1. One-stop shopping to pay your bills.  Instead of having to visit 12 different websites or send out 12 different checks to pay all your bills, you can submit ALL of your monthly payments in a matter of 2 or 3 minutes from the comfort of home.  And, because all of your bills are listed in one place, it helps you keep track of what has been paid, what needs to be paid, and what was already paid.  If you are learning how to budget or how to manage your money, having everything in one place like this is unbelievably helpful to you.
2. Fraud prevention.  Any time you give your account number or debit card number to a company, there is a risk of fraud.  In today's world, even sending out checks (which have your routing and account numbers printed right on them) can be incredibly dangerous.  Using bill pay allows the bank to send payments electronically to many of your merchants, which means that the payment is generated WITHOUT having to provide any of your banking information to the merchant.  This means that you and the bank are the only people who have your account number.
3. Dispute prevention.  Here is a fact that a lot of people don't realize.  Let's say you set up insurance with Progressive and give them your account number so that they can take automatic payments from your account.  Your bank has absolutely no idea what your contract is with Progressive.  So, if they have a computer issue, or if someone working for Progressive is not exactly trustworthy... you could see a payment taken from your checking account that you NEVER agreed to pay.  Or, what we see more often relates to timing.  You and Progressive agree that your payment is due on the 15th of each month.  But... Progressive takes the payment on the 13th, and you don't have enough money in your account to cover it.  If your account goes negative and you are charged fees, you will likely have to pay those fees out of pocket... the process to get the bank to reverse those can be incredibly long and time-consuming... and sometimes, it doesn't even work.  If Progressive sends a request to the bank and is able to provide them your account number, the bank has to assume that this is a valid authorization... the bank does not know your contract with Progressive.  This opens the door to all kinds of dispute and fraud situations... so, to prevent it, use bill pay.  The bank will send your payment to Progressive on the day that you choose.  Nobody but the bank has your account number, so nobody can take a payment when you're not expecting it.
   (Hint:  Many merchants, like Progressive, will offer you discounts to set up automatic payments with them.  They do this because, frankly, automatic payments give them ultimate power.  They get to decide when to collect, how much to collect, and why to collect.  If the money isn't in your account, they will just try again... and again... and again, until they are able to get the money from you.  Meanwhile, you're getting a fee from your bank every time they try and fail to collect the money.  It is my opinion... especially for people who are working to re-build credit or re-establish a strong financial foundation... to avoid automatic payments.  The extra that you pay on your insurance premium will be much less money out of pocket than what you will pay in fees if they don't do the things they are supposed to do...)
4. Fee Savings.  Most banks offer free stop payments and guarantee their bill pay items.  This gives you added protection over writing checks and making your payments manually.  Where as you take the risk for any checks you write or payments you make, the bank takes the risk for most bill pay items.  (Please check with your bank to know exactly what their policies are regarding bill payments.)

How to use it:

This is another great thing about bill pay- you can use it in whatever what works best for you.  For instance, I have all of my personal bills set up to be paid automatically... so there is very little that I ever have to do.  I went into bill pay and set it up to pay my bills... I told it who to pay, how much to pay, and what day of the month to pay it... and... that's it!  The bank does it for me every month.  I just have to log in to my online banking to make sure that everything gets paid correctly!

If that makes you nervous, you can also choose to pay all of your bills manually.  The bank will not pay it automatically unless you set it up that way.  So if you prefer, you can log in a few days before the bill is due and make a one-time payment for each of your bills.

Make sure you write down your bills in your check register and deduct them from your balance as soon as you submit them online.  Some bills cannot be paid electronically and get sent in the form of a paper check.  To avoid forgetting about them... you should write them down right away.

Basics 101: Creating a manageable budget

Every person (or household) needs a functional budget.  It is especially important for people who are recovering from credit problems or who feel overwhelmed by debt.  Keeping a budget can make or break your financial success.

If you've never used a budget, you might find it a little time-consuming to get started.  And it may mean that you have to take a serious look at your priorities.  (Electric bill trumps cigarettes, for instance.  If you can't pay WE Energies... you may have to re-evaluate the necessity of buying 3 cartons a week.)  Trust me, in the long run it will be well worth it to cut back now.  Once you get a handle on your finances, you'll hopefully have a little extra every paycheck to splurge on the things that make you really happy.

So... you'll need to set aside a little time.  If this is your first time doing this, you'll probably need 30-45 minutes.  To get started, here's what you're going to need:

• A list of your monthly bills.
• A calculator.
• A couple of paystubs (or a knowledge of your pay amounts and frequency).
• A calendar.
  (Hint: Use Google to create a calendar specifically for bills to help you track due dates.)
• A realistic list of how you usually spend your money.
• What do you normally spend on groceries?  Or, do you usually struggle to afford groceries?
• What non-bill expenses do you spend regularly.  (Daily Starbucks visits?  Saturday nights at the club?  Monthly date night with your college friends?)

Once you've gathered all your materials, it's time to get down to business.  I'm going to give an example as I go... this example will be for a single person without a ton of expenses, so it may or may not look at all like the one you create.  (Hint: Budgets frequently need to be revised.  If I looked back on the very first budget I created, it would look absolutely nothing like the one I use now.  The important thing to remember is that there is NO WAY for you to know exactly how your life will pan out.  The budget is a guide, and it should be adhered to whenever possible, but it will also need constant revision.  Don't worry if you have to tweak it next week or next month.)

Creating the Monthly Budget

1. Start with the money you bring in.  For our example, we'll say we get paid approximately $650 every two weeks.  (Hint: If your pay fluctuates from one pay period to the next, use the smallest amount you would expect to get paid for your normal work hours.  It never hurts if your check is more than you were expecting... but it can be hard if your check is smaller than you'd hoped.
   
                       Payday 1 = $650 on July 15          Payday 2 = $650 on July 29
                                               Total Monthly Wages: $1300
   
   
2. Make a list (on paper, not in your head) of your monthly bills.  On the list be sure to include the amount of the bill and the due date.  (Hint:  If your bill fluctuates from month to month, write down the MOST you would expect to pay for that bill.  Once again, it never hurts if you end up with extra money in your budget... but it can be very hard if you underestimate what you will owe.)
   
                         Cell phone = $75 due July 17th          Rent = $300 due July 30th
                Wireless internet = $45 due July 18th          Cable TV = $65 due August 5th
                   Car payment = $185 due July 20th           Heat/Electric Bill = $100 due August 10th
                      Credit Card = $50 due July 25th          
                  Personal loan = $100 due July 28th
   
   (Hint:  If you notice, I arranged the list of bills into two separate lists, based on which of my paychecks have to be used to pay them.  The bills that are due after July 15th are on the left because I will have to use that paycheck to pay them.  The bills due after July 29th are on the right.  Keeping them separate and organized will help with the next step.)
   
   
3. Start with your first paycheck of the month.  In our case, it is July 15th.  We have $650 dollars to spend, and we will need to use $455 to cover our bills.  (Hint: Try, from the beginning, to consider ALL of your bills priorities.  Sometimes you may have to go back and make changes... but ultimately, our bills should never be considered secondary to non-necessities.)  That leaves us $195 dollars to spend on miscellaneous needs.
   
   
4. Now we must look at the non-bill essentials.  These are usually groceries, gas, and savings.  (Hint: Get into the habit of considering savings a non-bill essential.  Saving can be small... it doesn't need to be a whole bunch of money.  But it helps you cover bills if you have an unexpected expense.  It can also help you afford things that you normally struggle to afford... like Christmas or Birthday presents.  And, with most banks, you can use your savings account as overdraft protection to help you avoid fees if your account accidentally goes negative.)
   
                                    Gas = $50         Groceries = $40        Savings = $10
                                                               Total = $100
   
   
5. We have $95 left to spend on miscellaneous needs.  This is where things get tough, because people tend to prioritize their "fun" activities, hobbies, and lifestyles above other things... like bills.  And while I know that your lifestyle is, essentially, who you are (which can make it incredibly difficult to give up the things you're used to), you may need to scale back in order to afford everything at once.  Make a list of all of the "extras" you would normally want to do.
   
             Go to the club twice = $100       Magazine subscription = $10     Shoe shopping = $40
   
   Ok.  We obviously don't have enough money to do all of these things.  So now we have to prioritize.  Different people will prioritize differently... there is no "right" way to do this.  A few points to remember: items like shoes and magazines are NOT necessities.  They can be put aside as "goals" to help you keep money in your savings account.  Then, once you have enough money in savings to afford them, splurge on a pair of shoes.  And, when it comes to going out to eat or bar-hopping, it can be very easy to scale back on the cost.  Limit yourself to one beer or cocktail.  And remind yourself that this is ALL the money you have to last until your next payday.  You will quickly find ways to have fun... without spending so much money.  And it won't take you long to get your life back in gear so that you can afford to let loose every once in a while.  :-)
   
   So, for the sake of our example, we're going to nix the shoes AND the magazine, and lower our allotment for clubbing to $50.  This leaves us a $45 padding.  (Hint: If you are able, leave yourself a small padding.  This is money that you don't just get to *spend*... it is there for a reason... in case of emergency or unexpected expense.  If you make it through your pay period with your padding intact, then you can splurge on something nice for yourself at your next payday.  Or, if you're being really smart, you'll put that money into savings to help jump-start your success.)
   
   
6. Now we're going to repeat steps 3-5 using our next paycheck.  We have $650 on July 29th, and $465 in bills that need to be paid from that money, which leaves $185.  We budget $100 for gas, groceries, and savings (the same numbers as last paycheck).  This time, we'll skip the clubbing and give ourselves $50 for shoe shopping.  We will have $35 left as "padding", in case of emergencies.
   

And with that, you have a very easy budget for the month.  Now all you need is the discipline to maintain your budget and not fall into temptations.  The shoes might be calling to you... but they're not in the budget.  Don't buy them.  If you're very disciplined, using our example budget, you could end the month's budget with $100 in savings.

Now, let's be honest.  It doesn't always work this way.  There are a LOT of families that could not do a budget this easily.  What happens if your bills equal MORE than your wages?  What happens when you budget $100 for your electric bill, but it ends up being $150?  What if you smoke 4 packs of cigarettes a day and are not sure which category to budget this into?  There are a million scenarios that could interfere with the swiftness of your family budget.

Let me just give you this advice:  Re-read my hint above about the fluidity of a family budget.  If you need to change it every week for the next 2 months... that is okay.  If you look at it once and think... "I need to start from scratch"... do it!  That's fine!  If you try to do it and end up in tears because you realize that you're in WAY over your head... that's okay, too.  Find an organization that helps with debt consolidation... or email me at cylestbrooksconsulting@gmail.com for more advice.  We will find a way to make it work for you... and, trust me, you will be so much better off once you get a good, solid budget in place for you and your family.