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Buy Like Buffett: Cash Advance, Pay Later

By Guest Blogger(view all posts by Mark.Riddix)
at 12:11PM Tuesday July 13, 2010
under Money Saving Tips

Companies are always coming up with new financial products that will drain you of your hard-earned dollars. Protecting your money in today's society is just as important as finding ways to maximize it. It's critical to educate yourself on the pros and cons of the different types of financial products that exist so that you can be prepared.

Here is a list of 4 financial products that will clean out your bank account.
Payday loans

Payday loans are advertised as short term loan solutions for individuals with cash emergencies. Payday loans require a job and no credit check. While they made provide short term relief for financial difficulties, they often lead to long term troubles. The problem is the nefarious interest rates attached to payday loans that keep you in debt forever. The average payday loan charges interest in the triple digits. Since most payday lenders prey upon young people and low income individuals, these high loan rates make it difficult for them to free themselves from payday loan services.

Tax refund loans

Tax refund loans are also known as refund anticipation loans. These loans allow you to get your refund instantly without having to wait for the IRS to send you your money. These loans sound great but come with strings attached. Agencies like H&R Block and Jackson Hewitt charge customers a fee for receiving a refund loan. Loan fees can be quite steep easily taking $100 out of a $2,000 loan refund. Consumers can avoid these exorbitant fees by e-filing their return and requesting direct deposit. A refund could be received in as little as 8 to 10 days. The best part is no fees!

Cash advances

If you are thinking about taking out a cash advance on your credit card, you may want to look for other loan sources. Credit card cash advances carry a 29.99% interest rate and are subject to extra fees. The typical fee is 2 to 4% of the cash advance amount. There is no grace period on cash advances which means that your account starts compounding interest the minute you withdraw the money. Do yourself a favor and skip the cash advance.

Convenience Checks

Have you ever received checks in the mail from your credit card company? Credit cards companies have a long history of spontaneously sending customers convenience checks. These so called "free" checks are tied to your existing credit limit. They enable you to write checks against your available credit. You can even go over your credit limit with a convenience check. Convenience checks are often treated like cash advances. They have onerous fees, high interest rates, and interest charge begin from the moment you write the check. If you see these checks in the mail, take out your scissors and start cutting.


Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.