By Karen MacNutt,
Contributing Editor

The call on my answering machine was most unusual.

"We have made an exhaustive search," the message said, "and think you are the right person for our management team. We will train you for this position . . ." The vision of that exploded into my imagination. I almost fell off of my chair in uncontrollable laughter. This personalized message was addressed to my late, lamented, German Shepard Dog. If I had a picture of him with a necktie, I would have sent it to the telemarketer with a note, "I'm ready to train to be your manager." The call, like the innumerable "you have won..." calls, was an attempt to get me to call back so that someone could sell me something I do not really want.

Putting aside the thousands of outright scams, there are hundreds of people in "reputable" businesses working hard to cheat you out of your money. They do not use guns, but they are not much different from thieves who do. They use your lack of knowledge of financial matters to separate you from your savings. A mugger only steals your wallet but these other people can give you a lifetime of financial pain. Often the consumer does not consult with an attorney until he or she is hopelessly in debt. Crushing debt destroys marriages, dreams, and a person's sense of security.

Easy credit terms offered by merchandisers and credit companies often lull consumers into a false sense of affluence. Introductory offers, "free trials" and other advertising gimmicks get you to sign up for the product or service without adequately considering how long the introductory offer will last or how much you will ultimately be charged. This can be very troublesome if those "membership fees" or item-of-the-month clubs are charging your credit card directly for a product or service you no longer want.

There are a number of red flags to bad financial transactions.

• 1. If the notice says you have won or been specially selected for something, and the notice comes bulk mail or is part of a tape recorded message, you can be sure that the only thing "special" about you is that they have your phone number or address. Not only does my dog get these notices regularly, but so, too, does my father who has been dead for almost 20 years and who would be 101 were he alive!
  
• 2. Unsolicited calls or letters offering you help with your credit problems or easy loans are no different. I once got a letter saying that because of my good credit, I was pre-approved for a $40,000 loan on my home at 11 Beacon Street in Boston. This was very revealing: a) 11 Beacon Street is not a home but a large office building in the center of Boston's commercial district, and b) I do not, unfortunately, own that multi-million dollar office building.
  
• 3. Offers that you have to accept right away should be avoided. The reason you must accept the offer right away is that they are afraid you will find out how really bad the offer is. You do not want to do business with anyone who will not put things in writing or who will not give you time for your lawyer to look things over. Statements such as, "You don't need a lawyer," or "Don't you trust me?" are sure signs that you can not trust the person and that you do need a lawyer.
  
• 4. Anything that seems to be too good to be true, is too good to be true.
  
• 5. Any offer that seems to require you to do something dishonest, is probably a scam.
  
• 6. In the words of the immortal P.T. Barnum, anyone who thinks he is getting something for nothing usually gets cheated.
  
• 7. Avoid doing business with people who only have a post office boxes for an address. If something goes bad with the transaction, you cannot make service on a post office box. A 20-year guarantee on their product or service is meaningless if you cannot locate them. If the person does not want to give you a street address, do not do business with them.

Never give personal information, social security numbers or banking information out over the phone or on line. Most reputable financial institutions will not ask you for your social security number or access codes on-line. A request on-line or on the phone from a financial institution for sensitive personal or financial information should be a red flag that causes you to immediately call the institution. Do not use the phone number provided in the communication, but obtain the number from directory assistance. Avoid giving your social security number to anyone, unless it is required for tax purposes and you are sure the person is reputable. Do not have it printed on your checks or placed on deeds, powers of attorney or other documents that might become public records.

Predatory lending practices by major businesses are as great a danger to your financial well being as are the practices of fly-by-night operations. Credit cards are a major factor in causing out of control personal debt. Changes in the bankruptcy code now make it much harder for consumers to get out from under crushing debt.

Many cards promise low interest rates. Sometimes these are only introductory rates which go up after the introductory period. If you can not afford to make payments on something for the first six months after you have bought it, how are you going to make the payments later? Many rates stay low until you are late with a payment. They then climb astronomically even if you are only a day late. Interest rates at or over 20% are not uncommon. If you are late with a payment, most credit card companies will charge you with a late fee of between twenty to thirty dollars. Add "fees" to that already high credit card rate and your finance charges can quickly exceed the original cost of the item you bought. To put it another way, if you buy something for $1,000 and you have low monthly payments of $20 per month at an interest rate is 20%, it will take you 9 years and $2,160 to pay off the item. If you make a minimum payment of $15 per month as suggested by the credit card company, it will take you over 40 years to pay off the balance at a cost in excess of $8,000.

Each time you are late with a payment, you will incur a late fee and your debt will climb faster than you are paying down on it. The credit card company does not care if you never pay off the original amount of the purchase. It is making huge profits from the interest you pay. It maximizes its profits when you only pay the minimum due on the card.

If you get sick or lose your job and stop paying on your credit cards, the bills will grow rapidly, because of interest and fees. If that happens, you should try to pay off your higher interest cards by shifting the debt to lower interest rate cards and make at least the minimum payment on the remaining card to avoid late payment fees. If you have four cards and do not make a timely payment on all four cards in one month, you will end up with at least $100 in late payment fees. That could occur even if the total balance due on the cards before the late payment was less than $50. If there is a good reason for the late payment, and you are not late by much, call the credit card company. You can negotiate with them to waive the fee especially if you have previously had a good payment history.

If you default on the cards, or if you pay the card off for less that 100 cents on the dollar, the credit card companies will list your debt as a bad debt. They will take the exorbitant interest and fees they charged you as a loss on their taxes even though they never paid out a nickel for the "lost" money. They will report the compromise of your debt to the credit reporting services as a failure to pay your debt even if you have paid well over the original price of the item you charged in interest and fees. You, on the other hand, will have to pay income tax on money you never had. That is right. If you owe someone money and you can not pay them back and they forgive the debt to you, the IRS taxes you on the money you could not pay as if it were earned income.

Credit card companies are good at getting late fees. If you read the fine print you will see credit card companies claim that you have somewhere between 20 to 30 days to pay your bill before you incur a fee or have to pay interest on a purchase. This is deceptive. Let's assume you have 21 days to pay your bill. The 21 days starts to run when they close the billing cycle. This is not the day they mail you the bill. It is the day they close their books. It might take them five days (this is often set out in the fine print) to mail you the bill. Credit card bills, if you notice, are always sent on bulk permits so they never have postmark dates. You have no way of knowing when the bill was sent. Let's assume it takes two days for the bill to get to you in the mail. It could take a lot longer if the bill is sent bulk rate and not first class. Seven days have now gone by. They do not credit your check on the day you mail it or on the day they deposit it. You are credited with the payment on the day they post it to your account. They say it takes about five days for them to do that. This is so even though many credit card companies now electronically take your money directly out of your bank account and do not "cash" your check. It will take the mail about three days to get your check back to the credit card company: one day each for the day you drop the check in the mail, the day the post office processes it, and the day it is delivered.

Within that 21 day period are six non-business days (Saturdays and Sundays). If we subtract ten processing days, six non-business days and five days for mailing, we come up with 21 days. You do not have 21 days to pay your bill. If you do not pay the bill within a day or two of receiving it, you have a good chance of getting hit with a late payment fee. This is irritating not only because of the money they charge you, but because it often triggers an interest rate hike on your card and is noted on your credit report.

The billing cycle is negotiable with the credit card company. There is no reason you should accept a short billing cycle.
Be very careful of loans that do not look like loans. They often carry very large interest rates. Those "checks" credit card companies send you are actually offers to make you a loan. The loans carry interest from the day you negotiate the "check" and often are at a higher rate of interest than the credit card.

Offers to sell you things at low monthly payment are also loans. Sometimes you can not stop the payments even if the item is total junk. The "loan" is often held by a second company, not the company that sold you the product. That second company will sue you if you stop payments. You can not raise the defense that the product sold by the first company was defective as a defense to paying the loan against the second company. Make sure you know all the terms of any installment agreement you enter into. It is very important that you have valid addresses for all of the people involved and not just post office boxes or mail drops.

Be very careful about your home. Consult your lawyer before signing anything. Loans that are liens against your home can result in your losing your home. Repairs that appear to be financed by the builder or for which the builder offers to find you financing are very dangerous. If the builder fails to complete the repair, you may still owe the money to the lender.

Home equity loans give the consumer the false impression that they have money. You are, in essence, trading your home for consumer goods. That is a bad deal. Salesmen who encourage you to go on trips or shopping sprees using home equity loans are endangering your most valuable asset. Seniors are frequent victims of this kind of sharp dealing because they have no ability to replace lost savings.
Being "pre-approved for a loan," may have little or no meaning unless you understand all the terms. Most mortgage companies are loan brokers. They are not lending their own money. They will find you a loan but if your credit is not good, the terms will be outrageous. Even banks, for the most part, no longer hold your mortgage. They sell it on the secondary mortgage market. They get their profit from the "costs" you are charged for the loan and the points. They are not hurt if you default on the loan. They have no interest in your long term ability to pay the note nor do they care if you end up paying twice what the going rate is for mortgage loans. When a lender gives a high risk borrower a loan, it is not doing the borrower a favor. Chances are the lender will suck every penny of savings from the borrower and saddle them with crushing payments that they will eventually default on. The emotional and financial toll on a family that loses its home is tremendous.

Home interest rates are still low but will eventually climb higher. Barring some kind of loan to bridge a family emergency, people who take out adjustable rate loans, balloon payment loans, or interest only loans to buy a house because they cannot afford a fixed rate loan, are playing financial Russian Roulette with four loaded chambers. The cost of borrowing money is not likely to be lower during our life time. When those balloon payments come due or when the adjustable rate goes up, the home owner stands a good chance of losing his or her home.

You can use the best dead bolt on the market. You can get the premier alarm system. You can take courses on defending yourself from muggers. You can buy a vault and have a pack of pit bulls and Rottweilers prowl your property. If you are not smart about managing your money, you can lose you home, your savings, your sense of security, and your marriage.