Dodging Financial Traps

When it comes to any news or information source, the best practice is to doubt its authenticity, at least at first. Take a moment to look up the source. Note its agenda and where its revenue comes from. It’s also critical to teach this skill to children, as believing everything they see and read can be harmful to their health and safety. Caution costs only a few minutes, while the alternative could cost you so much more.

Ads are getting harder to spot. Here are a few tips to help everyone in the family tell whether what they’re reading online is trying to sell them something:

• Look for interest-free loans—from friends or family who might be able to help you, or from local nonprofits that offer emergency credit. Even some employers offer advances.
• If you do have to borrow at interest, investigating lower-rate options must be a priority. Some credit unions offer lower- interest payday alternative loans (PALs) or quick loans. Even credit cards or traditional banks have “installment loans” which, while charging fairly high interest rates, are generally better options than payday rates.
• Start building an emergency fund now, setting aside ten to fifty dollars when you can, so you’re ready for the challenging situations that push people toward payday loans.
• Selling possessions (at yard sales or on sites like eBay or Craigslist) could be a first step if you need quick cash. While doing this may understandably be emotionally difficult, the debt you could pile up from high-interest loans will take a much larger toll on your life in the long run.

It’s hard to find an industry that doesn’t have a fee hidden among the details—and they can really add up. The first step is to recognize fees, which means reviewing charges again before clicking “buy” or looking over statements periodically to make sure new fees haven’t been added that you’re automatically paying.

You can also join Consumer Reports’ efforts to fight back. Initiatives like What the Fee?! push back against hidden fees in travel and entertainment, and it’s with the support of consumers like you that similar efforts helped us secure a federal law stopping sneaky fees from cable TV providers. Visit action.consumerreports.org/whatthefee to read about our current efforts against hidden fees.

Nearly two-thirds of college students graduate with student loans. If you’re one of them, know that picking the right repayment plan is critical. The lowest monthly payment might not be what’s best for you.

Some borrowers qualify for federal loan forgiveness. For the majority of borrowers, who will have to repay their loans, here’s a quick look at CR’s advice on that process:

• To pay the least amount in the long run, you’ll want to pay more than the minimum monthly payment. Use FinAid.org to help you calculate how much you can save by paying a bit more each month. Just be mindful of balancing that with your expenses and building some savings.

• Make sure your loan servicer uses the extra payments to pay down the principal and not the interest on your highest-rate loan. This will help reduce your overall payment. The Consumer Financial Protection Bureau website even has a sample letter you can use. Double-check to ensure that the loan servicer is actually directing that payment where you want it to go.

• If you can’t afford the standard payment on federal loans, a number of income-based plans are available. You can find them all listed at StudentAid.gov, on the page labeled “Apply for an Income-Driven Repayment Plan” (from the website’s home page, click on “Manage Loans”).

• Students and parents with private loans have the fewest options. Rates on private loans change, meaning you could end up owing even more interest over time. Avoid refinancing your federal loans into private ones, as you’ll lose important protections, such as the ability to defer or stretch out payments.

As of the writing of this book, you can obtain free yearly reports from the three credit companies (Equifax, Experian, and TransUnion) by going to AnnualCreditReport.com. You’ll have to answer a number of security questions, and if you fail to answer correctly you might have to go through the process of requesting your reports in writing.

Some credit cards now offer to provide you with your FICO credit score—one of the scores most commonly used by financial services—for free as a member. If so, you can likely find it by logging into your credit-card account online. Here are some of the credit cards that, as of 2021, offer this service free of charge: American Express, Bank of America, Barclays, Chase, Citi, Capital One, Discover, U.S. Bank, USAA, and Wells Fargo.