Real Life Stories of Financial Horror
As All Hallows' Eve stalks towards us on the calendar, you've probably spent your time thinking about spooky theme parties, revealing costumes, and the trick-or-treat route you'll take with the kids. Most importantly, you're thinking of scary stories to tell on the spookiest holiday of the year. Whether it's the one about the murderer with the hook hand, or tales of Slender Man, or even a modern horror story about a phone and a home invader, you're already anticipating the fun you'll have telling it and the fear it'll instill in your listeners.
But there are other stories. Scarier stories that keep adults up at night. These tales of bad credit, lost cash, payday loans gone wrong, and years spent wallowing in debt go bump in the night even better than the most realistic urban legend. But, unlike Jason or Freddy, you have the power to avoid these nightmare scenarios. Sit back and listen to five scary—and, worse, true—money stories, with the happy conclusion of how you can stay out of their sequels.
- The Student Who Didn't Know Her Loans
Just like a co-ed going to stay in that lovely cabin in the woods, Kylie thought taking on loans to pay for college was perfectly safe. Little did she know, her lender was one of many that set up loans to maximize their profit at the expense of naive students hoping to make their futures brighter. Ten years after graduation, she somehow owed more money than she borrowed, with no end in sight.
Student loans are supposed to be affordable financing to help people bootstrap their way into an education and financial success, but not all lenders offer a good deal on the loans they package for students. Before signing, Kylie should have investigated the following details:
- The interest rate, confirming it was lower than offers on conventional financing
- Payment terms, making certain she can afford the payments on an average salary earned by her degree
- Details on forbearance and deferment, for if she has trouble getting work
- When interest begins to accumulate
- When the first loan payment comes due
- The Family That Kept Spending
Isaac and Miko lived their lives month by month, affording the best in life because they both had great jobs and neither wanted kids yet. They didn't splurge on any high-ticket items, but neither did they pay much attention to what they bought every day. And then, one day, their credit card was declined when they tried to pay for dinner at a small dim sum shop they'd been to dozens of times. When they logged in to see what was the matter, they discovered they had accumulated over $10,000 in credit card debt! And they didn't even know why!
If you don't track your daily spending, a huge pile of debt can jump out at you like a monster in a closet. Suddenly you'll be contending with huge minimum payments just to stay ahead of the interest, wasting thousands of dollars each year. Protect yourself from this major monster by tracking your spending on a weekly basis, whether just in writing, regular reviews of your expenses, or using one of the many expense-tracking apps out there. It keeps you ahead of your spending, rather than letting it outrun you.
- The Credit History That Cried Wolf
Carlos was ready to buy a home, and found the perfect condo in a trendy neighborhood. It even had a view of the river. But when he went to apply for a mortgage, he was declined. The loan officer told him about a credit card account with multiple late payments, and a balance so high it hurt his debt-to-income ratio. When Carlos investigated, he found evidence of a credit card he had never applied for! But there it was, hurting his credit and his future!
False information is disappointingly common on credit reports. Sometimes the credit bureaus make a mistake and simply put somebody else's information on your account. Other times, identity theft has created fraudulent debt in your name. Even other times, something small but significant, like a hangover from a divorce affects your credit in ways you didn't anticipate. Still others, a single purchase with your credit card number can create a major hiccup in your credit score.
Whatever the cause, early detection is the cure. Scan your credit for spooky intruders at least once a year, which you can do for free at AnnualCreditReport, and confirm every item on there is legitimately yours. Also check your credit card statements in detail each month, looking for incorrect charges.
If you find errors or fraud, contact the credit bureaus and the creditor immediately. Getting the stuff taken off your record is another horror story in itself, but the earlier you start the quicker it will all be over.
- The Phantom Caller
Maria got a call one evening from a man saying he was from her credit card company. He told her the account was past due, and this call was the final attempt to get a payment before they filed an adverse action on her credit report. The man was friendly, and told her it was no big deal. He could take the payment right then on the phone, and everything would be all right. Maria said okay, and two days later her bank account was empty. Two weeks later, three new credit cards were opened in her name.
It turned out the man wasn't from her credit card company, but instead a scammer using a threat to collect Maria's personal information. Once he had her info, he used it to empty her accounts and commit identity theft. It took Maria a year to clear all the bad information from her credit report, and she still sees new attempts every couple of months.
Protect yourself from this all-too-common scary scam by observing the following steps:
- Credit card companies will not usually call you to demand payment. You'll get notices to call them.
- If you do get a call, tell the caller that you'll contact your card directly. Hang up and call the number on the back of your card.
- Set up automatic payments to your card for the minimum, to avoid any doubt, to begin with.
- The Short-Term Loan That Wouldn't Die
Arthur and Stephanie had a problem. They needed about $1,000 to make it to payday, but they only had $500. They applied for a payday loan and were immediately approved. Breathing sighs of relief, they paid their bills. But the very next month, they were short $600. The fees attached to their loan meant they couldn't make it to payday again. They had to take out another payday loan to bridge the gap. And the next month they were short $650. Their one-time solution turned into a permanent problem, and they didn't know what to do.
Short-term loans like payday loans and car title loans feel like lifesavers. They give quick, easy cash to bridge gaps in your finances. But, like Arthur and Stephanie discovered, the fees on those loans are exorbitantly high. Instead of being an easy fix to financial woes, they can trap you in a cycle of payment and borrowing for months or years.
Beat this monster by tracking your income and expenses carefully enough to never get surprised near the end of your pay period. If you have emergencies pop up, use any alternative means to make ends meet you can rather than a short-term loan. These loans are almost always more expensive than they're worth. If you have no other options, have your plan for earning or saving the extra money before you even apply. That keeps you from getting trapped in a borrowing cycle.
In general, your best defense against playing a starring role in these horrifying cautionary tales is to educate yourself, do a better job with financial planning, and use common sense. With a little thoughtfulness and preparation, you can keep all the scary stuff in the haunted houses this Halloween and outside of your bank account.
Do you know of any other "spooky" debt stories?
Lawrence Ferguson was once a victim of identity theft. He’s since spent years of his life rebuilding his credit and researching all the horror stories that other people have told about bad financial decisions.
Image credit: iStock
All content provided in this blog is supplied by Lawrence Ferguson and is for informational purposes only. Barclays makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.