Now that election fever has entered into calmer waters, many Americans are still faced with the continuous threat of this plagued “economic crisis” - as these times are being called.

Those daily reminders of the failing market conditions have lead many buyers to sit stagnant, literally scared to death to reunite with their past consumer indiscretions.  Yet money exchange productivity is what makes the world go round and should not - can not - demean if we ever expect to bring the American economy back standing tall. 

Naturally those big eyed purchases many Americans indulged in during past conditions are not the type of spending we should partake in.  Simply stated, if you know you can’t afford it, why buy it? 

Altogether difficult is the information needed to make a fair and smooth purchase is not so fair for the unknowing consumer.  So how do we know what to buy and when to buy?  Is this item really worth the monies spent or the actual cost based on the sticker price? 

Educating oneself on how companies become so enormous based on lending us money is something that many middle income families are not considering when signing long term payment plan contracts.

Contracts are not intended to provide us with the obvious clues as to how much we are actually spending for that item.  Don’t believe the hype, cease pampering your pride, and take the time to really educate yourself in what you are about to get into.

Interest Rate vs. Annual Percentage Rate (APR)

Interest rate is the percentage rate applied to an item before all the fees.  Knowing ones interest rate is meaningless in relation to how much you are going to be charged continuously on the entire cost for that item.Your APR is usually always more than your interest rate, yet the interest rate is the percentage that stands out the most in many contracts.  It is not the overall rate used in calculating how much you will spend to officially own that item.

Is the interest rate really all that important if you’re going to be making payments for many years?  Instead know how much your payments are and for how long.  Know how much of your monthly payments will be applied towards your principal balance.

Minimal Payments

Making the minimal payment, which is the payment most preferred by the lender is an easy way to wind up paying more for an item for an even longer period of time!  Minimum payments hardly pay the interest, which is the amount the bank charges for being kind enough to lend you the money in the first place.  The principal is the amount you actually borrowed for the item.  Minimal payments hardly touch the principal, so your payment that you work so hard to give every month is simply paying the bank back for their services rather than going towards the cost of that item.

Adjustable Mortgage Rates (ARM)

Although our government is monitoring lending transactions involving adjustable rates, there are still lenders passing out this fool’s gold to the desperate and unknowing.  BE CAUTIOUS!  A new fad rearing its head as a soon-to-be replacement to the no go adjustable rate is called Balloon Payment. To the unwary eye Balloon Payment appears to be years of consistent payment amounts with one big payment at the end…ok. However, the final payment is calculated as being a total of more than all of the consecutive monthly payments combined!  Can you say refinance?

Whole Life Insurance vs. Term Life Insurance

In layman’s terms, whole life insurance allows for an individual to pay on life insurance to cover them until their death, whereas term life insurance insures a policy owner for a period of years or term.  The questions many people have regarding the two insurance options are usually the same:

1. How much is one versus the other?
2. Why would I not want insurance for the rest of my life?

 Bottom line, life insurance was designed to protect new home buyers with young families in case of an unexpected fatality.  A man purchasing a policy at age 25 to protect and assist his surviving spouse and young children will not need the same coverage when he is 50.  By then his properties will be paid off with his children grown and out of the home.  Whole life insurance is a rip off!  Not only is it way more expensive than term insurance but is realistically not needed for the rest of an individual’s life!

Instead the consumer should purchase a term policy, which is literally fractions of a dollar less and is in effect during the times when a young family needs it most.  With the remainder of monies saved from purchasing a term policy over a whole life policy, an individual can invest their monies into a high interest yielding mutual fund that will allow them to have those emergency funds needed, and you don’t have to wait until one of you dies to get it.

Do not always fall for the hype when signing a loan document.  Focus on the total amount due after fees, finance charges and accumulated interest over time.  Never mind the initial interest rate and minimal monthly payment amount; those numbers are simply used as a means of getting your business.  The lender does not intend on making this ABC for the buyer, therefore, the buyer must come prepared to ask one simple question when offered a loan: “Exactly how much am I going to pay for this loan?” 

Some beating around the bush will occur, with low interest offers being stated, along with that surprisingly small and “affordable” minimal monthly payment.  It’s just not going to add up fairly, and the numbers never lie. 

 Finding out how much an item will cost you in its entirety will not only shock you, but it will prevent you from agreeing to a contract commitment that you could regret later down the line. 

Be number savvy, do your research, and know your limit.  People with financial stability do not invest in the newest cars, and most fashionable stuff, that’s why they are financially stable.  Break the cycle; make money smart investments and free up the extra money you have to do the many other things you enjoy.  Be Blessed.