Every time I flip on the television I see ads for new businesses that are offering short term loans that horrify me.  They are tremendously creative…you can borrow against your paycheck at a high interest rate.  If you are ridiculous enough to do this, you will end up receiving a paycheck that is even smaller than what you usually get and it will already have been spent before you cash it.

If you are not working because you have been in an accident and have a personal injury attorney on your case, there are companies that offer to give you the money up front…before you win  the case.  They say that if you don’t win, you don’t have to pay it back.  You can be sure, they will not make the offer unless they have been guaranteed a successful outcome by your attorney.  Again, in addition to giving 30-40 per cent of the settlement to your attorney and paying off the rest of your bills, you now owe the loan company their piece of the pie.

There are lots more of these schemes floating around.  You can pay someone a percentage of what you owe to have them teach you how to pay them, you can have someone negotiate your debts to get them lowered (and give all you save to them for doing it), and you can take out more credit cards, at unbelievably high interest rates to pay off the other cards. 

But my very favorite is the small, instant loans you can pick up to avoid paying late payment fees.  They tell you that, rather than paying those late payments, you can borrow $300  to pay your car payment of rent (does anyone pay that little any more), at a mere cost of $48 or so.  The kicker here is that you pay that $48 if you are able to repay the loan in one week.  It compounds at an alarming rate after that.

All of these schemes are there only to make them money…and put you deeper in debt.  It is unfortunate that many of you have lived in a world where you have gotten everything you want most of your life.  If you couldn’t afford, or your parents couldn’t, you simply charged it…assuming, I guess that it would go away or somebody would bail you out.

In simpler times, if you couldn’t afford that Christmas gift, you put it away on “layaway” and were given X number of weeks to make payments on it.  If you couldn’t pay it off…you lost the item…and the money.  That has evolved into “delayed payments” which allow you to take it home, use it, and get billed for it months later.  By that time, of course, you have forgotten you bought it, have no money to pay it off, and now get hit with huge interest rates.

This may be difficult to comprehend, but, kids, you do not need a new computer, iPhone, Wii game, and so on every time a new model comes out.  When times are bad and money is scarce you sometimes have to choose between what you would like to have, and what you need to have to live.  You have to save up for a special item, repair things instead of replacing them, or…BIG SHOCK…do without them. You can do it…your parents did!

As long as you are living in it, the house is your collateral. No credit check is required. You do not have to repay the loan unless you move or die. If the property devalues, you can never owe more than it is worth. Any equity in the home can be used, tax free, in any way you wish or need. Any equity that you spend is simply added on to the loan, which is paid back by your heirs if they wish to keep the house, or otherwise it reverts to the mortgage company.

This debt will include high interest rates, usually from eight to ten per cent of the value of your home. They may also tack on closing fees and various other fees. You are decreasing the amount your heirs will receive, since the full payment will come out of the sale of the home before they see any money at all.

In addition, you must be certain that Social Security will not be halted because of too large a loan received from the reverse mortgage. But that really isn’t the worst of it. Because of the unstable economy, reverse mortgaging has become a high pressure sales business (kind of like time sharing ). What may appear to be a legitimate offer can be a scam that will only waste what little security you may have, and take your home from you on top of it.

These agents and brokers will get you to sign away the rights to your home and leave you with nothing.
You need to steer clear of anyone offering you a deal that transfers ownership of your home to would be unknown investors. Some scam artists are saying that loans are HUD sanctioned when they are not.

Do not do business with anyone who tells you that you need to invest the proceeds from your reverse mortgage. At best, you will end up paying even more fees for investments that are not necessarily safe. At worst, they won’t invest it at all…they will steal it.

Reverse mortgages are not all bad. But it is much safer to try to make it on your income by tightening your belt, down-sizing your home if you can, and following my tips on how to lower your bills, stay warm, and eat well, on a very tight budget.