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10 Less Awkward Ways to Ask a Friend for Your Money Back

Paul Michael — Mon, 08 Jan 2018 09:30:16 +0000

So, you loaned your best friend some money. Months have passed and there's still no sign of it. Now you need that money back, but you don't want to be rude by asking for it. How do you go about it without causing offense, or jeopardizing the friendship? Here are a few ways to tackle this awkward subject without losing your buddy. (See also: 10 Money Moments That Are Awkward for Everyone)

1. First and foremost, ask politely

People get hung up on the idea of asking someone for money. "What will they think of me?" "What if they say I'm being inappropriate?" Well, let's start with the fact that your friend has already taken that step and asked you for money. Money, by the way, that you gave to them. So sweating about asking for it back is a little silly when you really think about it. (See also: 7 Ways Pride Is Keeping You Poor)

Now, how you go about asking for the money will make a difference. If you say something like, "I'm a little short right now, do you think you could find a way to pay me back that money I let you borrow, please?" then you should be fine. If you yell, "Oy, where's my money, I lent you weeks ago?!!" you risk adding tension to the relationship.

2. Find a way for them to work it off

If money is an issue for them, then maybe you can find some kind of favor they can do to wipe the slate clean. If they're a designer and you need a logo, can they do that for you and call it even? If they fix cars, could they take a look at yours and give an honest opinion about work that needs to be done? Everyone has some kind of talent or skill they can provide, and if you need it, they may appreciate the offer.

3. Barter for something they have that you want

This is another good way to get money back without actually having your friend pony up the cold hard cash. Is there something that your friend has that you would like? It should be of equivalent value to the cash you loaned them, so keep that in mind. Don't go asking for a flat screen TV because you loaned them $20. But if you know of something, and you think they'd be more than willing to part with it, give it a try. Maybe they have two of something, and would be happy to give you one. That would be an ideal way to make everyone happy.

4. Drop a subtle reminder

Presumably the money you loaned your friend was for something important. Very few people are going to respond to, "Why do you need it?" with "No reason" or "Not telling." So, why not bring it up in casual conversation? "Hey, how'd it go with that car repair? Everything OK?" This should be enough of a prompt to let them know you haven't forgotten about the loan, and that they are still obligated to pay it. (See also: How to Talk to Friends and Family About Money — Without Making Everyone Mad)

5. Decline certain activities

Another way to drop hints that you need the money back is to decline offers to do things that involve spending money. If your friend asks you to go to lunch, you can say, "I'd love to, but I'm really short on cash right now." If they ask you to go out on the town with them, just tell them straight, "I don't have the money to do something like that right now." If your friend understands basic social cues, they should pick up on the hints and offer to pay you back, or pay for you when you go out to eat.

6. Offer payment plan options

So you've broached the subject with your friend, and they've refused to pay you back. In that case, come back with a flexible payment plan. They may be genuinely stuck and unable to give you the whole amount back at once. But if they can pay it back in installments over a few months, that's nowhere near as scary. If you aren't feeling like they will honor the verbal agreement, get something down on paper. Or consider using an online payment service and monthly escrow payments. But hopefully, you won't have to go to such lengths with a good friend. (See also: The 16 Cardinal Rules of Loaning Money to Friends and Family)

7. Tell them you need the money urgently

Whether or not this is true is entirely up to you. If you don't need the money badly, but have a feeling you'll never get the money back without creating a sense urgency, a little white lie doesn't hurt. However, it's very possible that the tables will have turned, and your good deed is biting you back hard. Now you are in need of that money as badly as they were when they came to you. Remind them of this. A tiny bit of guilt coupled with a plea can really help your friend see that they need to make good on the loan.

8. Paint them into a corner

You truly need your money back. What do you do? Well, the next time you're out with this friend and you're purchasing food or drinks, tell them they still owe you money, so they can pay for your share of the check. Most friends at this point will be cool about it. If they refuse, tell them you've been waiting for that money and cannot afford to pay right now. If they're out with you at a bar or restaurant, they clearly have some kind of disposable income on hand. (See also: 6 Ways to Split the Bill Without Losing Friends)

9. Ask someone close to them to remind them

If you're a little nervous to approach them directly, consider asking someone close to them. Maybe it's a spouse, another friend, or a family member. If you let them know that you don't want to embarrass them by just coming out and saying you want the money back, they may be able to drop hints on your behalf. Something like, "I saw Jane the other day, she looked like she was having trouble paying a bill. Can you help her out?" might get the ball rolling. They may be more direct and say, "Jane loaned you some cash, isn't it time you paid her back?" It all depends on the people involved and their relationship with the person who still owes you.

10. Consider a credit card repayment

Times have definitely changed. In the past, the idea of paying back that $50 with a credit card would have been unheard of. After all, you're not a business with an Electronic Funds Transfer console and a merchant account. But now, you don't have to be. They can use PayPal or Venmo to send you the money. Or they can use a service like Square, which actually lets you swipe their card with a small reader, and charges a transaction fee of 2.75-3.5 percent plus 15 cents, depending on how the credit card is processed. You can even prompt them to send money to you with the "request money" feature. (See also: 6 Mobile Payment Tools You Should Start Using Today)

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 16 Cardinal Rules of Loaning Money to Friends and Family

Mikey Rox — Fri, 08 Jan 2016 16:00:03 +0000

Loaning money to friends and family is one of life's greatest dilemmas. On one hand, you want to help somebody you care for when they're in a financial bind. On the other, you know it probably won't go off without a hitch. Ultimately, the decision is yours on whether to extend that cash-filled helping hand, and if you choose the Good Samaritan route, it's important to remember these dos and don'ts.

1. Carefully Consider Who You're Helping

If it's your brother who's in need of a quick loan, and you know he'll pay you back on time with interest, your decision to lend money is a no-brainer. But if it's your deadbeat cousin Steven who has never had two nickels to rub together, but always somehow has pocketful of cash to buy rounds of shots for his lady friends at the bar because he wants to look like a baller, you should probably sleep on it.

When there's not a snowball's chance in hell that you'll see your money again, resolve to help without the expectation of being paid back, or just say no.

2. Don't Be Afraid to Say NO

You're under no obligation to give anyone — besides the government and your own creditors, of course — a dime of your hard-earned money. If you don't feel comfortable lending money to a friend or family member, just say no. They'll get over it. Or they won't, and you'll be better off for it.

3. Only Loan an Amount You Can Afford

If you have the disposable income to offer a loan without feeling the pinch, then okay. Only lend what you can afford without compromising your own financial situation.

4. Don't Expect Favors in Return

If you want to pay the person in need of money for completing tasks around the house or office, that's quite acceptable. There's no harm in earning the cash you need. But if that's not part of the original deal, don't expect the borrower to go out of their way to help you with anything. Sure, it's the decent thing to do — helping someone in other ways when they lend you money — but not everyone thinks that way, and it's not fair to place those expectations on unsuspecting people.

5. Keep it Strictly Business

Lending money is a business deal, not a friendly transaction. And when you treat it like the former, the experience is likelier to go much smoother than when it's positioned as the latter. Draw up a written contract, establish repayment terms — including interest (doesn't have to be bank-rate interest, but at least something minimal to provide motivation to pay on time) — and have both parties sign. Each of you should keep a copy, and post it on the fridge, as a reminder of what one of you is owed and what the other owes.

6. Never Berate Them About Their Poor Personal Finance Skills

If you've decided to help with loan, keep your opinion about their poor personal finance skills to yourself. There's no reason to kick somebody while they're down just to make yourself feel better. You can offer productive solutions to their consistent finance problems, but never in a way that makes them feel bad about themselves.

7. Establish Firmly That This Is a One-Time-Only Situation

Unless you want to operate as a 24-hour ATM, it's important to let the borrower know that this loan is a one-time gesture. Let them know that you don't want to be asked again under any circumstances. That might sound harsh, but you're not a bank, and people have a funny way of taking advantage of pushovers.

8. Avoid Giving Into Emotional Bullying

People who need money will sometimes pull out all the stops when trying to convince you to subsidize their life. Stay strong. Don't let those sad excuses and crocodile tears drag you down, especially when the dramatics are from someone you know better than to trust with a loan.

9. Suggest Sending Money Directly to Overdue Bills

If you're not completely comfortable handing over cash or a check to the borrower — like to your deadbeat cousin Steven — suggest sending money directly to the overdue bills in question. Even just proposing this solution is a good way to gauge where the priorities of the borrower lie, especially where your money is concerned. (See also: Prioritize These 5 Bills When You're Short on Cash)

10. Don't Bring It Up Out of Context

This loan is between you and them; it's not between you and your sister and her husband and your hairdresser. You don't have to tell the whole world about it. Likewise, you shouldn't hold it over the borrower's head either. When a payment is missed, address it specifically in that context, not when you're out to lunch and your friend or family member orders a beer that could be used to pay you back instead.

11. Be Vigilant About Payback

Hopefully, since you have created a contract and repayment terms with interest, you won't have to hunt down your money and it'll make its way to you on time. But if that's not the case, stay vigilant about payback. It might seem like you're hounding the borrower every time you ask — because you are. Don't feel bad about it, either. They asked for money, and you let them borrow it, and now you expect to be paid back according to the loan terms. Anything less is unacceptable.

12. Never Co-Sign for a Loan or Add Them to Your Credit Cards

Lending cash is one thing, but co-signing for loans and adding them as an authorized user on your credit card is a whole other ballgame, and you absolutely don't want any part of it. It is almost guaranteed to be a disaster. If that discussion is on the table, swiftly shut it down. You're not the person for the job.

13. Offer to Help Get Them Back on Track in Other Ways

In addition to the loan, offer suggestions on how they can improve their financial situation. Do you have tasks around the house or office they can be paid to do? Can you teach them how to spend and save smarter? Do you have certain money-saving shopping techniques you can employ? Think of how you can impart wisdom to the borrow so they can help themselves more often. (See also: 20 Money Mistakes Everyone Makes But No One Talks About)

14. Don't Dip Into Your Own Savings

If you can't afford to fund a personal loan from your own disposable income, you can't afford it. Your savings are just that — savings for emergencies, a new investment, or, frankly, whatever you want. That's money that you've worked hard to build up, and you shouldn't let anyone take away from that. Politely explain the situation, and close the case.

15. Plan for the Worst

Lending money to family and friends doesn't always go as planned, which is why it's important to have a Plan B.

"Discuss the worst-case scenario and put a conflict resolution plan in place that you both agree on," suggests personal finance expert Chantel Chapman. "Things can get awkward when it comes to money, so planning out how you will handle a conflict if one does happen when you are cool-headed versus acting on hot-headed emotion will protect your relationship in the future."

16. Avoid Going Into Debt Yourself

What's the point of helping someone out financially if it compromises your own financial integrity? The only answer is that misery loves company, and miserable is all you'll be if you let someone start bleeding you dry with loan requests. Their problems are not your problems, and it's not your responsibility to fix them. If you're in danger of going into debt by doling out loans to friends and family, put a stop to it immediately. They'll find another way; moochers always do.

Have you ever lent money to family or friends? What are some of your dos and don'ts? Let me know in the comments below.

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Times You Should Never Take a Loan

Mikey Rox — Tue, 03 Mar 2015 18:00:06 +0000

Banks create loans everyday, but this doesn't mean you should apply for one without fully weighing the risks. Sure, a loan can help build your credit history, and makes it easier to purchase high-ticket items, such as a home and an automobile. If you can afford a loan and you're able to manage it responsibly, getting approved for financing can be a godsend. But, there are clearly times when you should avoid taking out a loan at all costs. These are six of them.

1. The Bank Requires a Cosigner

A bank may not approve your loan unless there's a cosigner. But even if a parent or sibling agrees to cosign, the fact that you even need a cosigner is a sign you shouldn't get the loan. Seriously, dude, stop and think about this for a bit. You're not qualified — harsh reality, I know — so this loan probably isn't the best decision.

If a lender says you don't qualify on your own merit, rather than get a cosigner and put a Band-Aid on the situation, get to the root of the rejection and fix your credit in order to qualify on your own. Besides, a cosigner is a joint applicant, and the way you manage this account affects their credit history. Unless you want to risk damaging a relationship, leave friends and relatives out of your financial matters.

2. You Have a Low Credit Score

A low credit score doesn't mean you can't get a loan, but you'll certainly pay more for it than someone with good credit. Since you're a risky applicant, the bank will charge a higher interest rate, which also increases your monthly payments. Depending on how much you pay, getting a loan with bad credit can be a very costly decision in the long run. You're better off postponing the loan, fixing your credit, and then applying once you can qualify for prime rates.

3. To Pay for an Upcoming Vacation

If you're burnt out and need a break, it might be time for a vacation. Holla! But if you don't have cash to afford a vacation, getting a loan isn't the answer. Vacations are a time to relax and spend time with your family — not complicate your life. Unless you're in a position to pay off a loan immediately after you return home, think twice before financing your vacay. Yeah, it might be a trip of a lifetime and create memories for years to come, but it's not worth coming home to added financial stress, especially if you have to work more to pay off this loan. As an alternative, look into shorter getaways closer to home that won't cost a lot of money.

4. To Pay for a Wedding

Some people think the bigger the wedding, the better the wedding. These same people also think weddings are a once-in-a-lifetime event (and let's hope it is), so it's okay to splurge and go deep into debt. But given that 50% of all marriaged end in divorce, there's a solid chance that the wedding debt will last longer than the vows. A real kick in the you-know-whats, isn't it? I don't have firsthand experience (my husband and I are still holding our marriage together, but we also didn't spend a fortune on a wedding), but I'm guessing it's pretty frustrating to make payments on a wedding loan years after you and an ex-spouse break up. Anger-inducing, even. Some people have the fairy tale and enjoy happily ever after, but there are no guarantees. If you can't afford a lavish wedding with your own money, don't have one. You will regret it later.

5. When You're Borrowing Against Your Retirement

The decision to take a loan against your retirement account is ultimately your decision, but there are many factors to take into consideration. This money can be useful during a hardship or if you're buying a house and need a down payment. But a recent study shows that approximately $6 billion is lost to 401(k) loan defaults annually. That's a lot of well-intentioned people failing to repay their 401(k) loans.

If you're committed to paying back your retirement account, and if retirement is several years into the future, borrowing from your account isn't the end of the world. But if you don't think you'll be able to replenish an IRA or a 401(k) account, or if retirement is right around the corner, this isn't the time to gamble with your future.

6. You Can't Get Traditional Financing

If you can't get traditional financing from a bank, you might be tempted to get a payday or title loan. These loans can put fast cash in your pocket, and they don't typically require a credit check. But these are two of the riskiest loans available. Title loans have to be paid in full within two weeks and you'll pay high fees — as much as $25 per every $100 you borrow. A car title loan isn't any better. These loans require a paid off car and your title acts as collateral — but there's a catch: If you can't pay back a title loan, you lose your car. Steep sentence, for sure. Here's another catch: Nobody's wants to drive your broke butt around town because you can't manage your money, so don't make foolhardy financial mistakes.

Did you take out a loan when you shouldn't have? What happened?

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Best Money Tips: Ways to Deal With Student Loan Debt

Ashley Jacobs — Thu, 09 Oct 2014 19:00:04 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some awesome articles on dealing with student loan debt, feeling less stress, and money moves for the fall.

Understand Capital Costs

Philip Brewer — Mon, 10 Aug 2009 20:00:01 +0000

Especially for things people often buy on credit, like a car or a house, there's a tendency to divide the ownership into two periods--while the loan is being paid off, where the item is expensive, and after the loan has been paid off, where the item is free. This is a fundamental misunderstanding of capital costs.

Ordinary items are an extreme case of this. A new t-shirt or coffee mug costs a few dollars one time and then lasts for a year or twenty. Once you pay for it the "expensive" phase is already over, and now the item is "free" for however long it lasts. Items bought on credit only seem different because the "expensive" phase lasts longer than a moment.

Economists and accountants long ago figured out that this is the wrong way to think about capital costs. Each field came up with a slightly different path toward a correct understanding--accountants talk about depreciation while economists talk about present value--but it's the same idea.

Imagine that you pay $20,000 for a car that's going to last 10 years. If you pay cash, one way to think about it is that the car costs $20,000 in the first year and then is "free" for the next nine years. That's not an insane way to think about it--that's what your actual cash flow looks like--but it doesn't lead to smart decision making. It's somewhat better to think of it as costing $2,000 a year for 10 years--that'd be pretty accurate in a world where interest rates were zero and you always knew exactly how long the car would last. Since interest rates aren't zero and you don't know in advance exactly how long the car will last, you need to make some adjustments. (Accounting is all about the rules for making those adjustments, so that one company's accounts can be compared to another's. The tax man has a certain interest as well.)

The insight that the economists had is that what really matters is the interest rate. If you buy a car you might borrow the money--but then you have to pay interest on the loan. Alternatively, might pay cash--but then your cash is tied up in your car and can't be invested in something else. If the interest rates were the same, it wouldn't matter to you which one you did. (At least, it wouldn't matter to an economist.)

In simple cases, like deciding whether or not to take out a car loan, people's intuition serves them well enough--you know that the interest rate on the loan will be several percentage points higher than what you can earn on your savings, so paying cash makes sense if you have the cash. You also know that making the car last as long as possible is a win however you pay for the car. But in more subtle cases, simple intuition can lead you astray.

For example, suppose the location of your current home means that need to have two cars so that two adults in the household can both get to work. If you moved someplace where one person could get to work some other way (on foot, by bicycle, via public transit), you could get rid of one car. The economic analysis involves comparing the costs of the second car to the difference in rent. But--and this is the key point--it doesn't matter whether the car is paid for or not.

In a situation like that, the simple-minded analysis is to add up just the cash costs of the car--fuel, insurance, registration, maintenance, etc. This leads you badly astray if you imagine that having a paid-off car is different from having one where you're still making payments. The capital cost of your car is completely independent of whether you're currently making car payments. If you adjust your household situation so that you can get by on one fewer car you reduce your expense profile by the entire cost of maintaining that second car--including the capital cost. (One way to think about it is that you no longer need to be saving up to pay for its replacement.)

From a purely economic perspective, the only difference between buying something on credit and paying cash comes from the difference in interest rates. In the real world, of course, there are other differences--a debt constrains your future freedom, while cash in the bank expands it. But the purely economic perspective is worth understanding so that you don't make this kind of mistake.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

New Home Loan Rules Will Take Effect on July 30, 2009

Xin Lu — Tue, 21 Jul 2009 16:25:34 +0000

If you are in the process of buying a new primary residence or second home, or considering refinancing a loan, a new set of federal consumer protection rules taking effect on July 30th, 2009 may affect you. These rules are a part of the Mortgage Disclosure Improvement Act of 2008, and they are designed to give consumers more disclosure of the cost of a loan and also more time to make a decision. The final rules from the Federal Reserve were modified recently and here is a quick summary.

Early disclosures are required within three business days - Good faith estimates of mortgage loan costs must be given to a consumer within three business days of a consumer's loan application. Also, no fees may be collected besides a reasonable credit check fee. This means that the good faith estimate needs to be given before the lender collects an application or appraisal fee. In the past it was common for lenders to collect hundreds of dollars in fees before providing any cost estimates.

Creditors must wait seven business days to close a loan after early disclosures - This gives the consumer at least seven days to decide whether to close or not upon receiving the initial estimate. Currently it is common for disclosures to be provided less than 24 hours before closing.

Revised disclosures must be provided if loan interest terms change - The new rule states that if the final annual percentage rate of the loan differs from the original disclosure by more than 1/8th of a percent, a new disclosure must be provided and the lender has to wait another three days until closing. Once again this will give the consumer more time to decide whether or not to take the loan. The rules do permit a consumer to voluntarily close the loan sooner if there is a financial emergency, but the lender cannot force the consumer to close sooner.

Appraisal reports must be delivered to consumer three business days before closing - Currently consumers have the right to request a copy of the appraisal report, but many do not and many lenders tend to skip this step. Now appraisal reports are required to be delivered to the consumer. The consumer could waive the three day waiting period if they opt not to receive the appraisal.

As a consumer it is important to get as much information as you can about a home loan before you pull the trigger. These new rules also help by providing more time to review the information and think things over. Now it is up to lenders to implement these rules, but consumers should definitely be aware of what information they are entitled to starting this month.

For more infromation, go to Truth in Lending Regulation Z from the Federal Reserve

What do you think? Will these rules make the home loan process more transparent and less stressful for consumers?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Your Interest Rates Are About to Go Up

Andrea Karim — Wed, 02 Jul 2008 20:38:52 +0000

The thing about financial crises is that they never fail to affect everyone. Just because your entire investment portfolio didn't implode when the dotcom bubble burst doesn't mean that you weren't laid off like thousands of other people. Didn't get sucked into a subprime mortgage? Lucky you. You still need to watch your back, because your fiscal responsibility doesn't mean that you're safe from the crisis fallout.

Our economy is in the midst of a serious slide (bordering on a full-fledged recession). The causes for it are numerous, but the subprime mortgage crisis is causing some of the most accute problems.

One of these problems is that your credit card company might decide to raise your interest rates. How is this different from the way credit card companies usually behave? The problem is that now, credit card companies are going to start raising interest rates for customers with an excellent credit history.

Why? Because banks are hurting financially. Their problems are two-fold and causal:

Banks are losing millions on defaulted subprime mortgages.

Americans have been running up huge credit card bills in the past few years, with the assumption that a home equity loan could be secured to pay off the personal debt. Now that home equity loans are difficult to get, credit card delinquencies are on the rise.

This means that banks need to make some money, stat. How do they plan on doing this? They're going to raise interest rates on new and existing lines of credit and charge you even more in junk fees.

It doesn't matter to banks that you're a good customer with a good credit standing. What matters to banks is their bottom line, and the only way they can think of to prevent more massive financial losses this year is to rip off their remaining customers. The result is that banks are looking for reasons to consider you an "at-risk" customer.

Traditionally, at-risk customers are usually customers who run up a huge debt, pay late, only make minimum payments (although this is a tough one, as banks also LOVE you for only making minimum payments), or who have delinquent accounts. But now that banks and credit card companies are faltering, they're willing to look for all kinds of other at-risk factors, such as:

Paying for necessities, like food, gas, or your mortgage, using credit.

Buying items that aren't considered high-quality, like retread tires (that's right - according to Robert Manning, your credit card company is monitoring your purchases and will raise your rates if they think your purchases indicate that you are entering a time of financial difficulty).

Paying your bill too close to the deadline.

This is bad news for people who buy everything on credit in order to earn air miles or other bonus rewards. It's also drastically unfair and an incredible invasion of privacy. It's also another example of how we all end up paying for the collective financial stupidity of a few rogue investment bankers and mortgage lenders (yeah, I'm looking at you, Countrywide).

Although you are always supposed to keep an eye on your credit rates, be especially vigilant in the comings months - check every statement for bogus fees and unnecessary rate hikes. You may consider not purchasing items like groceries with a credit card for the considerable future. Be sure to call and harangue your credit card company if they try to peg you as at-risk despite a clean payment record. Try to pay your credit card bill at least three days in advance of the due date, if not significantly sooner.

Tedious though it may be, close monitoring of your statements can save you hundreds of dollars in the long run.

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

My car payments are too much! What should I do?

Andrea Karim — Mon, 30 Jul 2007 01:22:06 +0000

I've been struggling with a big financial dilemma for the past few months: whether or not to sell my car. I decided to take my question to three of my favotire personal finance bloggers.

Last August, I decided to purchase my first new car ever. I had only ever owned used (and entirely paid-for) vehicles prior to this. I researched the type of car that I wanted and settled on a 2007 Mazda3. It's a sexy little hatchback. It's sporty, zippy, and has all the trimmings. Problem is, it's busting my budget.

I got a decent base price on the car, but I fell for all the extras that the salesmen throw in at the end. You know, the extended warranty, the LoJack system. They kept showing me my monthly total (and not the grand total), and before I realized it, I was paying $3000 more for my car than I should have. I should note that this is pre-Wise Bread, so I wasn't nearly as wise as I am now. Ahem.

My payments aren't horrendous, and I have an excellent interest rate on the loan. But all together (insurance, gas, payments, upkeep), the car cfosts me about $600 per month. Everyone keeps telling me that $600 a month in transportation costs isn't that bad. But I can't stop thinking about how I could use that money every month to pay down my debt or contribute to my IRA.

Also, my car contributes to my laziness. It's an enabler. Having a car allows me to go anywhere, any time. While flexibility is nice, it's rarely necessary. I drive to the supermarket instead of walking. Hell, I drive to the closest mailbox instead of walking. I go to Target on a whim, buying stuff I don't need.

I'm thinking that if I didn't have a car, I wouldn't be so prone to spur-of-the-moment shopping, or runs to Safeway for blueberry sorbet in the middle of the night. I'd have to bike and bus to work. I have a motorcycle, so I can use that to get around if I need to go farther than a couple of miles, or go somewhere that Metro Transit doesn't cover. Also, the Flexcar program is increasingly popular in my area, and there's a pick-up location not too far from where I live.

Now, I know that I would still have to pay for that transportation, so the full $600 won't be going directly into a new money market account. I figure that, without the car, I could spend about $150 a month in transportation costs, max (I have a free bus pass, and my motorcycle gets great gas mileage). So I'd really only be putting away $450 per month.

My remaining balance on my car loan is just under 19K. My car is valued at about 19.5K. I decided to put the car up for sale to see if anyone wanted it. So far, I've had three people try to lowball me ("Yo, man, I'll give you 15K cash – here's my digits") and sales people try to help me list it on eBay. But I'm not getting a lot of bites. I tried lowering the price to 1K below the Kelly Blue Book value, but I'm still not getting much in the way of responses.

My questions to my favorite PF bloggers:

Should I just suck it up and continue making the payments? At the end of five years, I'd have my own car and not have to make payments anymore, so that's good. But on the other hand, I'd be paying well over 25K for something that I don't technically NEED.

Which is worse? To sell the car for less than it's worth, and thereby losing a couple of grand in payments that I'd still have to make to pay off the loan? Or keeping the car and paying all this money that could otherwise be going to shore up my finances?

Below is the advice that some very busy bloggers graciously offered me in response.

Leo Babuta, Zen Habits

"It sounds to me like you definitely want to get rid of the car ... so I would do it, assuming you can afford to pay for the difference between the loan principal and the selling price. You might be losing a few thousand dollars, but you will lose even more than that in interest over the course of the loan. The important factor here isn't financial, though, it's psychological: you want to be free of this
debt, and using the $450 per month on improving your financial situation, rather than spending it on something you don't need. And that is perfectly legitimate, and admirable in my opinion. As for surviving without a car ... many people have done it, it's better for your health, and better for the environment. Positives all around!"

Nina Smith, Queercents

Six hundred dollars per month is a boatload of money. How much money do you make each month? How much do you pay in rent? I’m not expecting an answer… I only ask to emphasize that your car expense is probably more than half of what you’re spending on housing per month. If you really love the car, then you could consider living in it like this college kid did to recover from his financial sins. His vehicle is a truck and a bit more suitable for sleeping. So even though most of us have found frugal uses for the backseat at some point in our cash-strapped lives, it’s probably not an option for you.

So by all means, sell the car! A car is a depreciating asset so it should be treated as a liability (which means the money spent on it isn’t working for you – it’s working for someone else). Liabilities bad! I drive a Volvo that’s paid for and seven years old. I certainly think (at my age and income) that I deserve to be driving an E class Mercedes, but it’s tricky to build wealth and buy assets, when you’re paying for the privilege of driving a fancy car.

By selling the sporty Mazda and taking a loss, you’ll lose on the front-end but you’ll be better off in the long run. Plus, you’ll be uber cool by going car-free.

Trent Hamm, The Simple Dollar

I'd continue making the payments and sell it later when you can get closer to book value. You've already made payments through the period where the car really depreciates - selling now is the equivalent of selling a stock at its low point.

--------------------------------------------

So, what do you readers think about this predicament? Should I just deal? Should I sell the car at a loss, because I'll come out ahead in the long run?

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Business Plan Basics

Julie Rains — Thu, 14 Jun 2007 21:48:59 +0000

I have a business and offer writing services so, on occasion, I have been asked to write business plans. Those making such requests are generally very eager, convinced of their no-fail ideas, and are being held back only by a lack of funding. Their bank accounts are typically not filled with the cash needed to support their soon-to-be highly profitable, cash-producing enterprises so they go to where they think the money is for them: the bank. Bankers do want to make loans but they also want to avoid loan defaults, so the would-be lenders ask for a business plan.

Apparently, the business-plan request surprises the otherwise hopeful entrepreneurs who then knock on my door. Although I am a writer and can create a financial statement, I am not an inventor, marketing researcher, mind-reader, or a magician. I quickly advise these clients to learn just a bit about business perhaps through business start-up classes offered through the community college or chamber of commerce. Such a process, which would take perhaps a month or two, would certainly delay the start of the business and result in not capturing the sure, hot market that is available today. So, again, the clients look to me, though, honestly, I have never requested or received a business loan.

I have learned, over the years, that it is best to give the start-up clients a list of items they need to give me in order to prepare a business plan. To date, I have never actually prepared said business plans (promises of giving me the information in a few days have never been fulfilled) but it has saved me quite a bit of time that I would have otherwise spent trying to convince clients that they are unprepared.

I developed the list based on Small Business for Dummies (by Eric Tyson and Jim Schell), which is available through amazon.com or the public library. My list is not comprehensive but is enough to get them started...

Business Description

Mission statement (business purpose, values, and/or motto)
Summary (brief description)
Legal/tax structure (a sole proprietorship, partnership, C Corporation, S Corporation, or Limited Liability Corporation-LLC)
Niche (how you will differentiate your company from the competition)

Management

education, experience, and accomplishments

Marketing Plan

Industry (overview, market conditions, industry leaders, and opportunities)
Potential customers (who they are and why they will choose your product or service)
Benefits of the product or service
Geography and distribution (where your customers are and how you will deliver products or services to them)
Marketing (how you will reach your target audience, how you will retain customers, and how you will build referrals)
Pricing (pricing structure, how your prices compare with competitors' prices)
Payment terms (how will customers pay you and if/how you will extend credit)

Operations

Employees (positions needed, job descriptions and skill sets, human resources policies, and compensation plans)
Vendors (products or services you will need and vendors you will use)

Financial Management Plan

Budget / profit and loss statement (expected income less expected expenses)
Balance sheet projections (assets such as equipment and liabilities such as loans)
Cash-flow projections (timing of income and expenses to determine if you will have cash in your account to cover your bank loan, payroll, etc.)

...or scare them away.

This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Avoid Foreclosure

Andrea Karim — Thu, 22 Mar 2007 20:46:15 +0000

What would you do if you were about to lose your home? What would you be willing to do to keep it? Is it even possible to keep it once you've missed a few payments?

The recent rash of stories about subprime lending, housing market crashes, and the subsequent stock market fluctuations has made me a touch nervous. If you think that only the poor, old, and mentally disabled have been targeted by subprime predatory lending, then you'd be wise to note that that's not true (thanks, Consumerist, for the link).

If you haven't been following the story, American Public Media's radio show Marketplace has an excellent summary of the situation here. Especially tragic is how the practice of selling chunks of mortgages to investors (rather than having a bank back them entirely) was started to help more people buy homes.

At least 4 properties (all rentals, all owned by the same person) on my street alone are being auctioned off within the next month, and that kind of activity is going to affect my property values (which are probably never going to be as high as they were when I bought the house anyway).

How can you avoid foreclosure, if you've been recently hit by high interest rates or financial disaster? For people who bought homes for the purpose of reselling them (otherwise known as 'flipping'), it might be difficult to avoid foreclosure. However, there are a few things you can do to try to keep your home.

1. Don't ignore the problem! Are you getting letters from your lender? Don't ignore them! The worst thing you can do is hope that this problem is going to go away. All lenders have a Loss Mitigation Department - call them immediately if you think you are going to fall behind on your payments. And make sure that you get to the Loss Mitigation department, and not just the collections department. Loss Mitigation departments will often work with borrowers to work out a payment plan.

2. Don't take any more loans! You're in deep enough trouble as it is with banks, and the only institutions who will want to loan you money now are the scammers who will do everything in their power to take away all of your assets, including the shirt off your back. That includes the loan sharks who are probably publishing the ads that are popping up all over this blog post right now ("Avoid foreclosure??? Low interest loans, fast, over-the-phone!"). Stay away from these bastards.

3. Rent! If you own more than one property that's languishing on the housing market, and the mortgage is not astronomically high quite yet [but still too high for you to pay along with your other mortgage(s)], you may consider renting it. There are costs and benefits to renting a property. Smart Money lists some here. For instance, you can deduct out-of-pocket expenses, such as mortgage interest, repairs, advertising fees for listing the rental, cleaning services, utilities and more.

Then there's the "phantom deduction" called depreciation. Just divide the fair market value of the property at the time you start renting it out (excluding the cost of land) by its recovery period — which is 27.5 years for residential rental property. Bingo! There's your annual depreciation. For example, if the home is worth $550,000, you divide that by 27.5 and get a $20,000 annual deduction. "The depreciation deduction will cover a lot of the [rental] income you're receiving, so it's a nice tax shelter," says Jeff Callahan, a CPA with Bederson & Co. in West Orange, N.J. "If you have another $10,000 in out-of-pocket expenses, which are also deductible, you can get $30,000 in rent tax-free," he says.

There are other things to consider when renting a property, too. The rental market matters, as does your area, the home's potential appreciation all factor in to the equation, as well as your ability to be a no-nonsense landlord to possibly unreasonable people.

In application to the home you live in, roommates (although incredibly annoying) are a great way to supplement your mortgage.

4. Call an HUD-approved housing counseling agency. They might be able to point you in the direction of government and community programs that can help you.

5. Additional Options: There are some other options that you may qualify for, that will help you avoid actual foreclosure. They're not ideal, but they are less damaging to your credit in the long run than actual foreclosure.

Special Forbearance: Payment plan that may even allow a temporary suspension of payments.
Refinancing: This is unlikely given today's market, but might be a possibility for people who have built up their credit score since they purchased their home.
Partial Claim: U.S. Department of Housing and Urban Development (HUD) will pay your lender to bring your mortgage up to date, but a lien is placed on your property.
Pre-foreclosure sale: Sell your house for less than it is worth in order to avoid a full foreclosure - pay off part of the loan. There are obvious downsides to this, and you will still owe some money to the bank, but it's probably preferable to foreclosure, too.
Deed-in-lieu of Foreclosure: This is where you give your property to your lender before it is foreclosed on. It may seem as hideous as losing your home to foreclosure, but it won't hit your credit as hard.

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Share the love!

Sarah Winfrey — Fri, 09 Feb 2007 23:31:43 +0000

This Valentine's Day, share the love around the world!

Kiva allows anyone with at least $25 dollars to spare to provide a loan to an entrepreneur in the developing world. These entrepreneurs are pre-screened by organizations in the country of origin, which means that the recipients of the loans are known to be hard-working, honest people who need (what seems to us) a little extra money to improve their business.

What seems to us to be a small amount of money can dramatically change the life of a poor person and their family. Many people around the world have the knowledge and ability to work, but don't have the start-up capital for a business. Kiva's loans most often (from what I read) cover that capital, and so allow a person to see the fruits of their labor instead of being paid a pittance for what they do, and to support their family where they could not before.

And the best thing about Kiva? Almost anyone can afford it! The smallest amount you can invest is $25, as your loan will add with the loans of others to total a full loan for one of the entrepreneurs. With Kiva's help, you (yes YOU) can do something to change someone's life.

If you invest in an entrpreneur, you not only get the benefit of knowing you helped somebody out of a tight spot, but you also get to follow their journey. You will receive journal updates about your entrpreneur and their business, in which someone from the in-country orgnaization will write about what they're able to do now that they have more money to work with. Eventually (usually within a year, according to the site), your money will be repaid and you'll have the option of reinvesting or cashing out.

While Kiva loans don't earn interest, they do earn you the knowledge that you've helped someone, and they allow you to make someone's life just a little better. What better way is there to show that you care about the world than investing in the future of individuals and their families?

This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

loan

10 Less Awkward Ways to Ask a Friend for Your Money Back

1. First and foremost, ask politely

2. Find a way for them to work it off

3. Barter for something they have that you want

4. Drop a subtle reminder

5. Decline certain activities

6. Offer payment plan options

7. Tell them you need the money urgently

8. Paint them into a corner

9. Ask someone close to them to remind them

10. Consider a credit card repayment

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The 16 Cardinal Rules of Loaning Money to Friends and Family

1. Carefully Consider Who You're Helping

2. Don't Be Afraid to Say NO

3. Only Loan an Amount You Can Afford

4. Don't Expect Favors in Return

5. Keep it Strictly Business

6. Never Berate Them About Their Poor Personal Finance Skills

7. Establish Firmly That This Is a One-Time-Only Situation

8. Avoid Giving Into Emotional Bullying

9. Suggest Sending Money Directly to Overdue Bills

10. Don't Bring It Up Out of Context

11. Be Vigilant About Payback

12. Never Co-Sign for a Loan or Add Them to Your Credit Cards

13. Offer to Help Get Them Back on Track in Other Ways

14. Don't Dip Into Your Own Savings

15. Plan for the Worst

16. Avoid Going Into Debt Yourself

6 Times You Should Never Take a Loan

1. The Bank Requires a Cosigner

2. You Have a Low Credit Score

3. To Pay for an Upcoming Vacation

4. To Pay for a Wedding

5. When You're Borrowing Against Your Retirement

6. You Can't Get Traditional Financing

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Best Money Tips: Ways to Deal With Student Loan Debt

Top 5 Articles

Other Essential Reading

Understand Capital Costs

New Home Loan Rules Will Take Effect on July 30, 2009

Your Interest Rates Are About to Go Up

My car payments are too much! What should I do?

Business Plan Basics

How to Avoid Foreclosure

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