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Five Recession Traps to Avoid

A sluggish economy brings out more than just long unemployment lines and frustrated citizens. It brings with it a host of predators who seek out individuals who are at the end of their rope. It can be really tempting to buy into some of the options that are often marketed to the average consumer. In order to get through tough economic times, you’ll need to be even more diligent in weeding out those opportunities that seem a bit too good to be true. Here are some common recession “traps” that make their way into the media (and even your neighborhoods)-ideas that seem logical, but may end up costing you money (or much more) in the long run.

Car Title Pawns

No one can tell you how to feed your family when your back is up against the wall. But it seems that everywhere you turn, there are car title pawn commercials beckoning you to ease your financial woes. Companies like TitleMax can be a bonus for emergencies (especially minor household “catastrophes.”) But it is extremely important to evaluate your financial situation before entering into this kind of agreement. Be sure that you completely understand the terms of your agreement, and will be able to handle the payments. These kinds of companies have the right to repossess your vehicle if you are seriously delinquent, but would actually prefer not to. In short, these commercials run day and night, hoping that frantic consumers will take the bait. Be certain that your needs actually warrant this kind of financing option.

Loan Modification Scams

Those who have managed to hold onto their homes in the face of job loss are typically concerned with keeping their homes. You’ll probably also see many more “loan modification” ads (in print and on TV) than you might imagine. These companies know that people are seeking out all sorts of survival options during the recession. As such, many of these options are scams. If a company seems to good to be true, it probably is. Do your homework before signing any paperwork, or making any arrangements. You should also never offer any money upfront to an organization that claims it could help you reduce mortgage payments or erase debt in any way. In fact, you may even want to attempt renegotiating with your lender. This is always the best place to start to avoid getting into a position where you could be evicted for failing to meet “new loan” agreements.

Grocery Store “Sales”

For the most part, you can easily tell when you’re being “taken” at the supermarket. But lately, you might find that some supermarkets offer sales on certain items after you have spent a particular amount of money. For those who are already in the store, spending their unemployment checks on a huge basket of items, this might be beneficial. But some who don’t read the fine print on the labels in the store might not realize that the items they’re picking up will not be reduced unless the spend say, $25 or more. Always read the fine print when a sale seems exceptionally juicy. If you’re one of those people who doesn’t always check out his grocery receipts, you’ll return home to find that you’ve spent more than you planned on items that you don’t really need.

Credit Cards (Pre-paid or otherwise)

One might think that offering credit cards to consumers during a recession isn’t a smart move. But you would be surprised by the number of people who lean toward this option as a way of paying off debts or surviving during a slow economy. Some companies offering pre-paid credit/debit cards are completely legitimate. But there are so many organizations in existence that you’ll really need to do your homework. For instance, you may find one Visa card option that seems great for your budget and financial situation. But in the fine print, you may have failed to realize that the card holds a $10 monthly fee that you’ll be responsible for–whether you use the card or not. Thus, you have just created a new bill for yourself where there was none before. These kinds of cards can really help to improve your credit score if they are used properly. But if you’re seeking out one of them merely to get through a financial crunch, you may want to re-evaluate your application.

Job Offers

There are millions of scam artists who supply people with fraudulent checks to cash, in exchange for returning a small portion of “lottery winnings.” In the same vein, beware of those predators who rely on distraught job seekers to become unwilling participants in their money scams. Those using the Internet to find employment are particularly susceptible. The scammers place ads placed on various career websites, hoping to reel people in. They provide information that looks legitimate, and will ask for typical contact information, including an email address. But the ad (with contact request) is merely a ploy to get your email information. They will then send to you correspondence that looks like a job offer, but is in actuality-an advertisement for their business. Some scammers will even ask for money for “training programs”, etc. These are usually easy to spot. But with a flimsy economy, the scammers are becoming savvier in concealing their true intent. Some of them seem like real companies.

Basically, you should be wary of any job offer that has arrived too quickly after contacting the “employer.” A good rule of thumb is to investigate every single company that you’re considering for employment. Do so before providing any contact information. Check career forums and blogs; you may be surprised that there are other people who have fallen prey and are willing to share their experiences with others.

How We Improved Our Financial Health

Several years ago my husband and I were in quite a financial fiasco. We were behind in payments on our housing, autos, utilities, and installment loans, and creditors were calling us constantly. Our young marriage was rocky at best due mostly to the financial stress. After much hard work, though, we managed to dig ourselves out of the hole we were in, and I’m happy to say we are now on a much firmer financial footing. I’ve tried to put together an outline of how we improved our financial health. I put them in some sort of order, but many of them must be done simultaneously.

Change your attitude

This was the first, and most crucial, step in turning our financial life around. We had to accept responsibility for the choices we had made and make a conscious decision that we no longer wanted to live that way. We wanted a better life for our family with less stress. Though we didn’t realize it at the time, the change in attitude in one area of our life slowly overflowed to all other areas and many of the problems we were facing seemed to disappear. Now I look back and realize how much of an impact our attitudes had on our lives and marriage.

Set goals

Preferably with your spouse so you can work together. As I learned in the early part of our marriage, it’s very difficult to get anywhere when resources are spent trying to go in two separate directions. And if you don’t set a specific goal, like saving for a down payment, paying off credit cards, or going on a family vacation, you are less likely to actually set the money aside.

Analyze spending

Starting with the monthly bills and getting right down to the little things like the candy bar at the gas station. The simple act of writing down everything you spend (and your spouse) for thirty days can be a huge eye opener. I resisted for years, and when I finally stuck with it for 3 months I was amazed at the potential savings I had overlooked for so long.

Start slashing costs

How drastic you need to be depends on how desperate your circumstances. Start with things you and your family are least likely to notice and that will provide motivation to continue.

Research, research, research

There is information everywhere on every subject imaginable. Check out books at your local library and do online searches for finances, saving money, living cheaply, or a specific area you want to save money on. Find like-minded people who you can share with and learn from.

Make and stick to a realistic spending plan (aka budget)

Do it simple or fancy, just get it done. Write down all the income and the bills and fill in with the extras like groceries, gas, allowances, clothing, etc. It must work on paper before it will work in real life! Dave Ramsey and Mary Hunt both have excellent advice on budgeting and getting out of debt.

Start paying off debt

Of course, you must stop buying things with credit if you ever want to pay it off. Most of our problems were old bills we had let lapse into collection. Once we had adjusted our attitudes and set up a plan, I started paying the bills off one by one. I started with the smallest ones and paid those as the budget permitted. There was a great sense of achievement after the smaller ones were gone. Then I moved onto the larger bills, which required making phone calls to creditors whom we hadn’t been in contact with for some time. Those calls were extremely difficult! Not only was my pride a little bruised, but I often had to deal with rude people. After having my feelings hurt on more than one occasion by what I felt was a lack of helpfulness, I finally started asking to speak to a different person. If that didn’t work, I simply hung up and called again until I was speaking with someone who wanted to take my money without insulting me. And one last note: Save records of everything you pay off! This is especially useful when cleaning up your credit report.

Plan, plan, plan

I don’t believe in unexpected expenses; I simply think they are unplanned. Everyone gets sick, the car will eventually break down, the dog will have to go to the vet. Just make sure you set aside a little bit at a time on a regular basis and the money will be there when you need it. Mary Hunt calls this a Freedom Account. Planning also applies to purchases of all kinds. Amy Dacyzyn, author of The Tightwad Gazette, says you should plan purchases in such a way that you get them before you need them at the lowest possible price. If your kids need winter clothes for next year, get them this summer at yard sales.

Clean up your credit

This should not be an immediate concern! If you are serious about getting out of debt then you don’t need to worry about how great your credit is. However, it should be done eventually since it takes years for bad stuff to disappear, and you may want to buy a house down the road. I didn’t tackle this until we were paying our bills on time and had paid off the collection items. It was a huge undertaking that took up a lot of hours over a couple of weeks. First I went to a link from Dave Ramsey’s website and ordered a 3-in-1 credit report so I could see everything at once. I did a rough read through to see what was immediately incorrect and then started digging deeper. My records from paying off old collection bills were very helpful. Once I had a list of all the items that needed to be corrected I went to the credit agency’s website and filled out a dispute form. They responded to each item I questioned and sent me a new credit report after all the changes were made.