Should You Consider Going to a Pawnshop for a Small Business Loan?

Getting a small business loan is often one of the most difficult parts of turning a great idea into a profitable enterprise. This is especially true if you don’t have a good credit score or a significant asset to put up as collateral on the loan.

Historically, pawnshops provided loans to individuals who were having trouble getting traditional financing. But now they’re turning their attention to small business owners facing the same difficulties. Should you consider this option for your fledgling company? Take a look at the details below to decide for yourself.

Opting for a pawnshop loan sounds like a good idea

If you’re unfamiliar with how pawnshop financing works, the structure of the loan works like this: You bring a valuable item into a pawnshop and the owner assesses its worth. He or she will then lend you money based on a portion of the item’s value; for example, if you bring in an antique worth $500, the owner might be willing to give you a loan for $300.

Then the owner holds on to the item until you’ve repaid your loan – with interest, of course (see below). If you don’t pay on your loan, the owner will simply keep the item you pawned and sell it to recoup his or her losses.

It’s easy to see why pawnshop financing would be attractive to small business owners:

• Most loans are made immediately; there’s no waiting for weeks on a lending decision.


• Loans can be for almost any amount; if you pawn an item of very high value, you could end up with serious cash in your pocket.


• No credit check is necessary; this makes qualifying for a loan easy.

A 2014 article in the San Francisco Business Times profiled a local pawnshop called Provident Loan Associates. From the piece:

“While there are no figures that track how many small businesses turn to pawn shops for cash, Provident is among the growing number of pawn shops lending to small business owners and entrepreneurs. … In at least one case, Provident has lent money to a tech startup just getting off the ground.”

Clearly, the small business and startup communities find pawn financing increasingly attractive – but what’s the catch?

But using a pawnshop to get a loan for your small business comes at a price

Many pawnshops have increased their respectability in recent years, but there’s still a major drawback to their loan products that can’t be ignored: the interest rates.

Most (but not all) states regulate the interest rates charged by pawnshops and keep interest rates at or below 5% per month. But at 5% per month, the APR on a pawn loan works out to 60%. Most small business loans charge an APR of roughly 7-8% as of June 2014, so you’re paying a very high price if you opt for the convenience of a pawn loan.

Another consideration is that all pawn loans must be secured by a valuable item. If you don’t own expensive jewelry, artwork or anything else that would fetch a loan amount high enough to meet your business’s needs, you’re out of luck.

You don’t have to resort to pawnshops to get financing

Although it may seem impossible, you can get a loan for your small business without resorting to a pawnshop. Here are three cost-effective alternative financing ideas if you haven’t had success with traditional banks:

Peer-to-peer lending – Many popular peer-to-peer lending sites have begun expanding their products to small business owners. For example, Lending Club now offers business loans of up to $100,000 at as low as 5.9%. Plus, the online application is much simpler than that of a conventional bank’s.

Grants from your state – While the Small Business Administration (SBA) doesn’t provide grants directly to entrepreneurs for the purpose of starting or expanding a business, you might be able to get a grant from your state. Your odds are especially good if your venture provides some kind of public service.

Crowdfunding – Crowdfunding has exploded in popularity in recent years, and it’s a good option for people with ideas that are likely to get a lot of online attention. While Kickstarter is probably the best-known crowdfunding site, others, like Fundable, are specifically for raising capital for small businesses.

Although you’ll have to pay a portion of the funds you raised to the site (and possibly some other fees), crowdfunding is a good option because it’s not a traditional loan. You typically won’t have to worry about paying money back.

The takeaway: Although using a pawnshop to get a small business loan might seem like a good idea, there are alternatives out there that are much less costly. Be sure to explore all of your options!

Small business owner crunching numbers image via Shutterstock

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Find the Best No Foreign Transaction Fee Credit Cards

Ever felt like you’ve been ripped off when you use your credit card internationally? Chances are, you’re right: most dock you 3% of every dollar you spend overseas. But these cards will save you a pretty penny with waived foreign transaction fees, bonus travel rewards, killer signup offers and more. Read on for our review of our favorite credit cards with no foreign transaction fee, as well as a comprehensive, continuously updated list.

NerdWallet’s picks: the best no foreign transaction fee cards List of all no F/X fee cards Currency conversion study

A Few of Our Favorite International Credit Cards

Best airline credit card: The Capital One® Venture® Rewards Credit Card

Use miles on: Any airline or hotel – miles are redeemed against any travel expense

Apply Now

on Capital One's

secure website

The Capital One® Venture® Rewards Credit Card gives a solid 2 No Hassle Miles for every dollar spent, which are redeemable against any travel purchase. You aren’t tied to any airline or hotel, you don’t have to jump through hoops to get your rewards, and you can book through Kayak, Expedia or whatever discount site you like. The $59 annual fee’s waived the first year, but it comes with a Enjoy a one-time bonus of 40,000 miles once you spend $3,000 on purchases within the first 3 months, equal to $400 in travel signup bonus. Obviously, it has no foreign transaction fee, but it also has no blackout dates and no expiration on your miles.

Best no-fee, cash-back card: the Capital One® Quicksilver® Cash Rewards Credit Card

Use miles on: Anything; it’s cash.

Apply Now

on Capital One's

secure website

The Capital One® Quicksilver® Cash Rewards Credit Card doesn’t only help you dodge foreign transaction fees: It also has no annual fee. But this doesn’t mean you’re sacrificing rewards: You get a flat 1.5% cash back on all purchases, plus a One-time $100 bonus after you spend $500 on purchases within the first 3 months. signup bonus. Just because you travel abroad doesn’t mean you have to pay for your card!

Best travel points card with no foreign transaction fee: the BankAmericard Travel Rewards® Credit Card

Use points on: Any airline or hotel – points are redeemed against any travel expense

Apply Now

on Bank of America's

secure website

The BankAmericard Travel Rewards® Credit Card offers a flat 1.5 points on every dollar you spend and has no annual fee, but provides additional perks for travelers. It has EMV chip technology, too, which is helpful when you’re traveling to Europe. If you have other qualifying Bank of America accounts, you can also get an annual 10% customer points bonus on your total purchases, raising your rate to 1.65 points on every $1 spent. Those points can be redeemed as a statement credit against any travel purchase, including, airfare, baggage fees and hotels. And with 10,000 bonus points if you make at least $500 in purchases in the first 90 days, there’s a lot to love.

Best signup bonus: the Chase Sapphire Preferred® Card

Transfer points 1:1 to United MileagePlus, Southwest, British Airways, Korean Air, Ritz-Carlton, Marriott, Hyatt, Priority Club, Amtrak

Apply Now

on Chase's

secure website

The Chase Sapphire Preferred is another great travel rewards credit card, and our favorite in Chase’s lineup with a fantastic signup bonus of Earn 40,000 bonus points after you spend $3,000 in the first 3 months.. The points are worth 25% more when you redeem them for travel through Chase’s booking tool, an opportunity offered on no other personal Chase credit card. It earns 2 points per $1 spent on travel and restaurants and 1 point elsewhere, but provides opportunities to up that rewards rate. Your rewards rate could be as high as 2.50% and 1.25%. The stellar bonus and the waived first-year fee practically scream grab and go.

Credit Cards With No Foreign Transaction Fee

These are all credit cards that charge no foreign transaction fees at all. Are we missing anything? Let us know in the comments below.

List current as of February 25th, 2013.

• American Express Platinum and Centurion (as of April 2011)


• BankAmericard Travel Rewards®


• Barclaycard Arrival World MasterCard


• Barclaycard Arrival – No Annual Fee


• All Capital One credit cards, including:
  
  
  
  • Capital One® Venture® Rewards Credit Card
  
  
  • Capital One® Quicksilver® Cash Rewards Credit Card
  
  
  • Capital One Spark for Business suite
  
  
  • Capital One® Cash Rewards for Newcomers, for recent immigrants looking to build credit
  
  
  
  


• Citi ThankYou Premier and Citi ThankYou Prestige (as of December, 2010)


• Citi Hilton HHonors Reserve


• Citi Executive AAdvantage World Elite MasterCard (as of July, 2011, carries a $450 annual fee)


• Chase British Airways Card (as of November 2010)


• Chase Priority Club Rewards Signature (as of July 2010)


• Chase Hyatt Card


• Chase Fairmont Visa Signature


• Chase Palladium, if you’re one of the fortunate few (we’re not)


• Chase Ritz Carlton Rewards Card (as of June 2011, though this has a $395 annual fee)


• Chase United MileagePlus Explorer


• Chase United MileagePlus Club Card ($395 annual fee)


• Chase Sapphire Preferred


• Chase Southwest Airlines Rapid Rewards Premier


• All Discover credit cards, such as the Discover It
  
  
  
  • (An excellent option in China, but international acceptance is limited – check our list of which countries accept Discover for more information)
  
  
  
  


• First National Bank of Omaha Graphite American Express


• Marriott Rewards Premiere from Chase (as of March 2011)


• All Pentagon Federal cards, including the Pentagon Federal Promise (currently offering 4.99% balance transfers for 2 years) and PenFed Premium Travel American Express (5x points on airfare & Priority Pass lounge access when you spend $15k+ at 600 lounges worldwide)


• Harvard World MasterCard


• HSBC Premier (you have to have something on the order of $100,000 deposited with them to qualify)


• Schwab’s Invest First Visa (one of the best credit card deals of all time, but no longer available)


• U.S. Bank Skypass Visa Signature


• Most credit unions offer up no fees other than the 1% Visa charges them. Some even have “no foreign transaction fee”, including
  
  
  
  • Northop Grumman Federal Credit Union (anyone can join by making a contribution to the Southern California Historical Aircraft Foundation)
  
  
  • Andrews Federal Credit Union (any U.S. citizen can join)
  
  
  • Vystar Credit Union (must live in FL)
  
  
  • ESL Federal Credit Union (must live in upstate NY)
  
  
  • Texas Dow Employees Credit Union (TDECU) – anyone in the metro Houston area can join
  
  
  • Truliant Federal Credit Union (membership open to many regions of VA, SC, and near Greeneville, SC)
  
  
  • Associated Credit Union (membership is open to everyone)
  
  
  • Kirtland Federal Credit Union (membership is tough here, you have to be affiliated with the military in Arizona, either on Kirtland AFB, Reserves, or NM National Guard)
  
  
  • Reliant Credit Union (Monroe, Ontario and Wayne counties in New York)
  
  
  • Aerospace Credit Union (you have to work for Aerospace Corporation, or on Los Angeles AFB)
  
  
  • CoastHills Federal Credit Union (for residents of San Luis Obispo and northern Santa Barbara counties in CA)
  
  
  • Stanford Federal Credit Union (Anyone can join by donating $15-20 to one of two organizations)
  
  
  • Pacific Oaks Federal Credit Union (Open to residents of Ventura County, California)
  
  
  • Burbank Community Federal Credit Union (Open to residents of the City of Burbank, California)
  
  
  • Elga Credit Union (Open to residents of the Michigan Counties of Genesee, Saginaw, Lapeer, Shiawassee, Oakland, or Livingston)
  
  
  • Cy-Fair Federal Credit Union (Open to residents of parts of Houston, in the Cy-Fair ISD area)
  
  
  • Taylor Model Basin Federal Credit Union
  
  
  • Virginia Credit Union (Open to residents in many areas of Virginia)
  
  
  • Apple Federal Credit Union (Open to those associated with many of the school systems in Northern Virginia)
  
  
  • State Department Federal Credit Union (Anyone can join with a donation to the American Consumer Council)
  
  
  
  

Are Stated Foreign Transaction Fees Representative of Reality?

Now, in addition to what the banks claim they will charge you in terms of “foreign transaction fees”, you are also faced with the exchange rate that your credit card issuer uses to convert the currencies. And if you’re a cynic like me, you may wonder if they charge you hidden fees and unfair exchange rates on top of the disclosed rates. We reached out to our readers in April 2010′s Hong Kong Dollar FX survey and Euro FX survey, and were able to buy the same item at the same time with 10 credit cards from leading US card issuers. Note that Hong Kong dollars don’t fluctuate much, because they are pegged to the US dollar. The Euro is a different story entirely, especially given the budding European debt crisis.

Conclusion

Surprisingly, everyone keeps it pretty straightforward and honest, so it pays to look for the card issuer with the lowest advertised foreign transaction fee rate.

Foreign Transaction Fee Survey Results

In the tables below, there are a few Amex and Fidelity results that differ from the expected values by a few cents. We re-ran the experiment on a few of these cards with transactions that were closer to $100, and these anomalies disappeared.

HKD survey:

	Disclosed FX Fee	Estimated Charge for HK$15	Actual Charge for HK$15
Paypal	N/A	N/A	$1.99
Bank of America	3.0%	$1.99	$1.99
Citi	3.0%	$1.99	$1.99
Citi Amex	3.0%	$1.99	$1.99
Chase	3.0%	$1.99	$1.99
Wells Fargo	3.0%	$1.99	$1.99
US Bank	3.0%	$1.99	$1.99
Zion’s Bank	3.0%	$1.99	$1.99
American Express	2.7%	$1.98	$1.99
Fidelity	1.0%	$1.95	$1.95
Capital One	0.0%	$1.93	$1.93
HSBC Premier	0.0%	$1.93	$1.93
Schwab	0.0%	$1.93	$1.93
Exchange Rate at Time of Transaction			$1.93

Euro survey:

	Disclosed FX Fee	Estimated Charge for €2	Actual Charge for €2
Paypal	N/A	N/A	$2.77
Bank of America	3.0%	$2.79	$2.79
Citi	3.0%	$2.79	$2.79
Citi Amex	3.0%	$2.79	$2.79
Chase	3.0%	$2.79	$2.79
American Express	2.7%	$2.78	$2.80
Fidelity	1.0%	$2.74	$2.76
Capital One	0.0%	$2.71	$2.71
HSBC Premier	0.0%	$2.71	$2.71
Schwab	0.0%	$2.71	$2.71
Exchange Rate at Time of Transaction			$2.71

Current foreign transaction fees for US card issuers

Issuer	Foreign Transaction Fee
Air Force Federal Credit Union	1%
American Express	2.7%
Bank of America	3% (Visa/MC), 1% (American Express)
Barclays	3%
BB&T	3%
Capital One	0%
Chase	3% *
Citibank	3%
Citizens Bank	1.5%
Comerica Bank	3%
Commerce Bank	0%
Discover	0%
Heartland Bank	3%
KeyBank	3%
Fidelity	1% (American Express) 3% (Visa)
Fifth Third Bank	3%
First National Omaha Bank	3%
Horizon Bank	2%
HSBC	3%* (0% for Premier)
Navy Federal	1%
Nordstrom fsb	1%
Pentagon Federal Credit Union	2% (0% for Promise)
PNC	3%*
Schwab	0%
Simmons Bank	3%
Sovereign Bank	3%
State Farm	1%
US Bank	3%
USAA	1%
Wells Fargo	3%
Zion’s Bank	2%

* While HSBC and Chase offer lower charges to a small number of “premier” customers, the majority of their cards charge 3%.

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get verifed your paypal NOW

Do you really want to know How to get a free Payoneer MasterCard in Bangladesh or Pakistan? Yes that’s right it’s FREE! You can receive a mastercard sent to you directly through postal mail, absolutely free! This is one of finest ways to receive your online earnings in hand.

Free MasterCard in Bangladesh, Pakistan or any country

This offer is available exclusively for users in 200 countries. If you are outside of Bangladesh or Pakistan, you can still apply for this free mastercard.

You wont need a bank account in order to have a free master card.

You will not need credit statement to get a mastercard.

You can use this master card to do online shopping, buy laptops, gadgets, pay online bills, buy domains and use paypal.

You can use this free mastercard to get your funds from a local ATM. Yes Dutch Bangla bank, Janata Bank Q-cash, Standard Chartred ATMs are available too!

You can use this mastercard card in foreign countries.

You can use this mastercard in shopping malls.

Sign up for the payoneer mastercard

The first step for you to get a free mastercard is to follow this link and click sign up!

CLICK HERE -----> Sign Up For MasterCard Payoneer

The good news is that after writing this review, Payoneer Inc contacted me and they created a special promotion where you can sign up and receive a free $25 bonus. Please use this link to sign up and receive $25 when you activate your card.

Now you have to submit your details, on the first step of the order process, add your first name, last name, email address and date of birth and click NEXT:

Select your country from the drop down list. You have option to select Bangladesh or Pakistan. Unfortunately Payoneer MasterCard has stopped working on India. Select your country, add your address (where this card will be mailed to you), enter your phone number and click NEXT:

In step 3 of the order process you have to specify a password and a security question and answer. Please write down the information you have submitted, click NEXT:

In step number 4 you will be asked to submit verification documents. You have the choice to use national ID, passport or driving license. You can use the Govt Voter ID of Bangladesh or your national ID card in Pakistan to sign up. If you have a passport you can use that too.

If you do not have any of them, say you are a minor and have no voter ID, then ask your parents to use their information. For this go back to step one as you will need to use your parent name and details.

Now check all the terms and click FINISH:

You should now receive a message or email of your submission.

Receive & activate your free mastercard

You will receive your payoneer mastercard within 30 days. In Bangladesh it took me roughly 30 days to receive. Some people got it even early within few weeks. I guess in Pakistan, the process is similar.

After you receive your card, log in to your payoneer account and add the digits you see in your card. Add the pin number you want. After that your mastercard will be activated!

Depending on your location it may take 2-4 weeks to receive this card. This will be from a standard postal mail.

Fees?

Although applying and receiving this payoneer mastercard is free of charge, there are some fees associated to maintain this card. So I highly suggest you start working on a marketplace, earn some money to use this card: (click on the image to zoom)

Loading money to your card

I have seen an issue recently that when you get your card first you cannot load money using another card. They require that you load your card from sites like odesk/elance first. I don’t know why they did this thing so before ordering this card make sure you are working on any of these marketplaces and have at least $100 to load.

You can sign up for odesk (a freelance marketplace) and use this as a payment method. From odesk just go to the payment methods and activate the payoneer option. When they ask to sign up for a card, just click that you already have a card and link it.

This card also has the US payment option available.

Basically US payment service is a virtual US bank account. You can use this with Commission Junction to accept ACH/Wire transfers and you can also use it on paypal. 

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Active your paypal Get a Free Payoneer MasterCard Vailabe in All world

Do you really want to know How to get a free Payoneer MasterCard in Bangladesh or Pakistan? Yes that’s right it’s FREE! You can receive a mastercard sent to you directly through postal mail, absolutely free! This is one of finest ways to receive your online earnings in hand.

Free MasterCard in Bangladesh, Pakistan or any country

This offer is available exclusively for users in 200 countries. If you are outside of Bangladesh or Pakistan, you can still apply for this free mastercard.

You wont need a bank account in order to have a free master card.

You will not need credit statement to get a mastercard.

You can use this master card to do online shopping, buy laptops, gadgets, pay online bills, buy domains and use paypal.

You can use this free mastercard to get your funds from a local ATM. Yes Dutch Bangla bank, Janata Bank Q-cash, Standard Chartred ATMs are available too!

You can use this mastercard card in foreign countries.

You can use this mastercard in shopping malls.

Sign up for the payoneer mastercard

The first step for you to get a free mastercard is to follow this link and click sign up!

CLICK HERE -----> Sign Up For MasterCard Payoneer

The good news is that after writing this review, Payoneer Inc contacted me and they created a special promotion where you can sign up and receive a free $25 bonus. Please use this link to sign up and receive $25 when you activate your card.

Now you have to submit your details, on the first step of the order process, add your first name, last name, email address and date of birth and click NEXT:

Select your country from the drop down list. You have option to select Bangladesh or Pakistan. Unfortunately Payoneer MasterCard has stopped working on India. Select your country, add your address (where this card will be mailed to you), enter your phone number and click NEXT:

In step 3 of the order process you have to specify a password and a security question and answer. Please write down the information you have submitted, click NEXT:

In step number 4 you will be asked to submit verification documents. You have the choice to use national ID, passport or driving license. You can use the Govt Voter ID of Bangladesh or your national ID card in Pakistan to sign up. If you have a passport you can use that too.

If you do not have any of them, say you are a minor and have no voter ID, then ask your parents to use their information. For this go back to step one as you will need to use your parent name and details.

Now check all the terms and click FINISH:

You should now receive a message or email of your submission.

Receive & activate your free mastercard

You will receive your payoneer mastercard within 30 days. In Bangladesh it took me roughly 30 days to receive. Some people got it even early within few weeks. I guess in Pakistan, the process is similar.

After you receive your card, log in to your payoneer account and add the digits you see in your card. Add the pin number you want. After that your mastercard will be activated!

Depending on your location it may take 2-4 weeks to receive this card. This will be from a standard postal mail.

Fees?

Although applying and receiving this payoneer mastercard is free of charge, there are some fees associated to maintain this card. So I highly suggest you start working on a marketplace, earn some money to use this card: (click on the image to zoom)

Loading money to your card

I have seen an issue recently that when you get your card first you cannot load money using another card. They require that you load your card from sites like odesk/elance first. I don’t know why they did this thing so before ordering this card make sure you are working on any of these marketplaces and have at least $100 to load.

You can sign up for odesk (a freelance marketplace) and use this as a payment method. From odesk just go to the payment methods and activate the payoneer option. When they ask to sign up for a card, just click that you already have a card and link it.

This card also has the US payment option available.

Basically US payment service is a virtual US bank account. You can use this with Commission Junction to accept ACH/Wire transfers and you can also use it on paypal. 

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President Obama’s Credit Card Didn’t Get Declined – But Here’s What to Do If You Aren’t So Lucky

The leader of the free world has a lot on his mind, and now we know that “credit card getting declined” is one of the items he’s worried about. On July 10, 2014, President Obama pulled out his card to pay a bill of over $300 at a popular barbecue joint in Austin, Texas. Before he handed it over to the cashier, he asked an aide if the card would work.

Luckily, President Obama was able to swipe successfully. But if you’ve ever wondered what you should do if your card gets declined, the Nerds have a few tips to share. If you happen to know President Obama, be sure to pass them along!

1. Use your backup card

Trying to get through the checkout line at the drug store or fill up your tank, only to find that your credit card is declined? In the heat of the moment, it’s best to just stay calm and use your backup credit card. Swiping a malfunctioning card again and again isn’t going to make it work, and it’s best not to keep others in line waiting.

If you don’t usually carry a backup credit card, it’s time to consider getting one. There are lots of reasons your card could get declined, so it’s best to err on the side of caution and stash extra plastic in your wallet.

The Nerds recommend a rewards credit card with no annual fee as a backup. It doesn’t make sense to pay an annual fee on a card you rarely use, and taking advantage of the opportunity to rack up points or cash back on every purchases is always a smart move.

2. Brainstorm

Now that you’ve made it past the payment terminal and have a moment to think, it’s time to brainstorm some reasons for why your card was declined. Before placing a call to your issuer’s customer service line, see if you can come up with the answer on your own. Here are some questions to ask yourself:

• Is my card expired? We all get busy and forget about things, so if it slipped your mind to activate your new credit card, your old one might have passed its expiration date. Try to use it, and you’re out of luck!


• Is my card maxed out? Charging so much that you hit your credit limit is another possible reason your card could get declined. Check online to see if you’ve used up all of your available credit. If so, pay it off as soon as you can. Maxing out a card renders it useless, but it’s also bad for your credit score.


• Is my card damaged? Physically damaging your credit card’s magnetic strip could make it unreadable to some credit card terminals. Look it over for scratches, scrapes and other signs of injury.

3. Investigate

If the answers to the questions above don’t yield an obvious reason why your card was declined, it’s time to get in touch with your credit card company. Call its customer service number (usually listed on the back of your card) and clearly explain the situation, including the merchant you were trying to use your card at when it was declined.

There’s probably a simple explanation; for example, if you were trying to buy something online with an international retailer when your card got declined, your issuer might have flagged the purchase as suspicious and blocked it. Or there might be a “hold” on your card from a hotel stay or rental car reservation.

Whatever the case may be, your credit card company will help you straighten it out. If they can’t restore your plastic to good working order, request a replacement. They will probably be happy to oblige!

The bottom line: A declined credit card is cause for concern, but don’t get too anxious. You’ll likely get to the bottom of the problem on your own. If not, call your credit card company for help. As always, be sure to check in with the Nerds often for more helpful tips!

Credit card declined image via Shutterstock

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To Automate or Not to Automate … Your Credit Card Payments

To automate or not to automate, that is the credit card bill paying question. The Nerds are big fans of automating bill pay, but there are benefits and drawbacks to everything. Here’s why you may or may not want to automate your credit card payments.

What exactly is automatic bill pay?

Many of us pay the majority of our bills online by inputting bank or credit card information on our billing companies’ websites. There are two ways to initiate this payment: manual and automatic. With manual payments, you’ll log on each month on or before your due date to schedule a payment. With automatic payments, you’ll set up a recurring payment once, and your balance due will be automatically withdrawn from your bank account on the due date each month. Which is better? It depends on your financial situation.

The case for automation: Your financial life just got simpler

The biggest benefit of automation is the simplicity it provides to your finances. Automating your bill payments takes much less time and energy than manually paying them each month. It ensures you won’t miss a payment because it comes out of your account automatically and you don’t have to remember an entire calendar of due dates.

Most people can benefit from automating their bill pay. It makes things simpler and helps avoid late payments and the fees associated with them. However, automation has a dark side, too.

The case against automation: Overdrafts, minimums and complacency

There are a few reasons why you may not want to automate your bill pay. For starters, if you have a recent history of checking account overdrafts, you may not be ready for automatic bill pay, yet. For automation to be successful, the money has to be available in your account. Otherwise, you’ll be charged late-payment and returned-check fees, and may have the delinquent payment reported to the credit agencies. Only automate payments if you know the money will be in your account each month.

Those with credit card debt may want to automate most bill payments, but not credit card payments. Why? It’s really easy to automate only the minimum payment instead of paying down your credit card debt aggressively, costing you hundreds or thousands of dollars in interest. It’s a good idea to keep your credit card payments manual if you’re unable to pay off the entirety of the balance each month, so you can pay it down as quickly as possible.

One other potential issue with automation: complacency. When bills are being directly withdrawn from your checking account, you may neglect to look over them first. If your billing companies never make a mistake, this isn’t a problem. However, for those of us who aren’t residents of Neverland or Narnia, it’s important to look over monthly bills to ensure all charges are correct. It’s fine to automate bills, but make sure you have the statement sent to your email for a monthly review.

Bottom line: To automate or not to automate?

Automate your bills if you don’t have issues with overdrafting. Always look over your monthly statements to identify and rectify mistakes and consider paying your credit card bills manually unless you can automate the payment of the entire balance each month. If you have a recent history of account overdrafting, keep track of your due dates and pay bills manually. Also, try to avoid overdrafting in the future by keeping a cash buffer in your checking account.

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How the CFPB Is Protecting the Credit of Foster Kids

The foster care system in the United States is a double-edged sword. There are few things more altruistic than a loving family taking in a child for any period of time, and giving that child love and care and a safe place to live. Unfortunately, the foster system is understaffed and there are those for whom being a foster parent is merely an invitation to exploit an already exploited child.

One of the ways this exploitation can occur is through the foster child’s own credit history. There is, of course, the possibility of outright identity theft. Foster parents are often given lots of information concerning their charge. Most minors, foster and otherwise, have never even accessed their credit score. They likely do not even have a credit history. Opening credit accounts in that child’s name and using them illicitly can harm the child’s credit history for years.

CFPB teams up in protecting the credit of foster kids

While the effectiveness of the Consumer Financial Protection Bureau has been a mixed-bag since inception, sometimes creating more harm than good, it is doing good in encouraging child welfare agencies to pro-actively assist foster children with obtaining and interpreting their credit reports.

The CFPB has issued action letters to welfare agencies to address these issues. First comes a reminder that the Child and Family Services Improvement and Innovation Act requires agencies to check the credit reports of those over 16 on an annual basis. The child’s age is a big factor here because one cannot legally enter into a contract for credit as a minor. Thus, if any accounts have been opened, then it’s a sure sign someone has tampered with that child’s credit. The good news is that the culprit is likely to have been a previous foster parent, and they can be tracked down for criminal charges.

The same goes, more or less, if they are under 18. A foster kid is highly unlikely to have any credit accounts, because they are still a minor under 18. The only reason they might have an account is if they were made an authorized user, and it’s unlikely a foster parent would do that.

Guidance also includes advice from the Nerds about how to dispute credit reporting errors, and about the importance of establishing, maintaining, and protecting one’s credit.

Agencies could use help developing prevention strategies

Ultimately, however, this matter shows the limitations of government. The CFPB isn’t actually doing anything, aside from sending action letters.

Instead, these matters will fall to case workers. They are often overwhelmed as it is, and their agency supervisors have a lot on their plate, as well. Welfare agencies need to partner with entrepreneurs to prioritize and innovate preventative measures, and make sure case workers stay on top of them. That’s the best way to protect the most vulnerable among us.

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