Tax Refund Predators Are Waiting

People who don’t have much money during the rest of the year can become big targets during tax refund season.

For those living paycheck to paycheck, tax refunds — which average around $3,000 — may be the largest chunk of unobligated cash they see all year. Retailers hope to get some of that money, but so do debt collectors, buy-here-pay-here car lots and purveyors of interest-free loans that come with fat fees. People flush with cash need to proceed with caution.

Paying old debts

Collectors step up calls and mailings during tax season because they know more people “will have some extra cash to address past problems,” says Michael Bovee, president of debt settlement company Consumer Recovery Network in Spokane, Washington.

But people who are ready to settle old debts also can turn the situation to their advantage, Bovee notes.

“Use tax time as leverage [by telling] a debt collector the offer you are making is as good as it gets, and it could be another year before you have anything extra in your budget,” he says.

Many old debts have been sold to collectors for pennies on the dollar, which people may be able to settle for 20% to 50% of the original amount, Bovee says. That’s the good news. The bad is that paying old debts typically won’t help the credit scores most lenders use and could cause other collectors to come out of the woodwork.

“Settling often means updates to your credit reports, and that can bring other debts to the surface that had gone quiet,” Bovee says.

If your debt troubles are too big to solve with a single refund, you may still have a good use for that check: filing for bankruptcy. Filing a Chapter 7 bankruptcy costs $335, while attorneys fees often range from $1,200 to $2,500 depending on location and the complexity of your case, according to self-help legal site Nolo.

Shopping at buy-here-pay-here car lots

The pitch is tempting: Use your refund as a down payment to replace your old, unreliable car — regardless of how bad (or nonexistent) your credit may be. Unfortunately, you may be replacing one junker with another, and not for long.

The Better Business Bureau warns that buy-here-pay-here lots often hawk older, high-mileage cars, typically with steep markups and high interest rates. The payments can be so big that borrowers fall behind, which allows the dealerships to seize and resell the vehicles — sometimes over and over. (Borrowers are typically required to make weekly payments at the dealership, and many cars are equipped with remote switches that disable the vehicle if the borrower doesn’t pay on time.)

People with bruised or nonexistent credit shouldn’t assume buy-here-pay-here lots are their only option. Credit unions and regular dealerships are increasingly willing to offer auto loans for subprime customers. In addition, more than 150 nonprofits affiliated with Working Cars for Working Families offer low-interest loans, matching funds for down payments and even free cars for those in need.

Borrowing against a tax refund

Several years ago, regulators put the kibosh on tax refund loans that charged exorbitant interest rates. The newest incarnation — the “interest-free tax refund loan” offered by tax preparation services — may not be as benign as it seems.

People typically have to pay tax preparation fees to get the loans for a portion of their refunds. Those fees — for services they might not pay for except to get the refund loan — can represent a sizable chunk of the loan. A $200 fee, for example, represents an annual percentage rate equivalent to 480% on a one-month $500 loan. If the loan were $1,000, the APR would be a still-sizable 240%.

Many taxpayers can avoid paying anything for tax preparation by using the IRS’ Free File options. Free tax software is available for people who earn less than $64,000, while those who earn more can use free fillable forms that check their math.

For those who need cash fast, credit unions offer a payday alternative loan, which are small loans with a maximum annual percentage rate of 28% and application fees capped at $20. Borrowers can pay off the loan when their refund arrives.

The best use of a refund for many people, though, is to save at least some of it. Even a few hundred dollars in emergency funds can be enough to weather small financial shocks, break the paycheck-to-paycheck cycle and start down the path to a healthier financial life.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.

The article Tax Refund Predators Are Waiting originally appeared on NerdWallet.

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Elder Financial Exploitation

To con artists, down-on-their-luck relatives, or opportunistic acquaintances, they are gold mines. Individuals over the age of 50 control 70% of the country’s wealth, and seniors between the ages of 65 and 74, with an average net worth of $1.06 million, have more assets than any other age group.

“That’s where the money is,” says Jay Haapala, AARP associate state director of community outreach in Minnesota. “If college kids had a bunch of disposable income lying around, criminals would be trying to figure out how to scam college kids.”

Dementia, disability, and decline can make it even easier for criminals. All told, it is a problem that costs American seniors billions of dollars every year.

Common forms of exploitation
There are myriad scams, unethical businesses, and unscrupulous individuals preying on seniors all the time. While the details vary, there are a few familiar scenarios.

Breach of trust
The vast majority of elder financial abuse—as much as 90%, according to the National Adult Protective Services Association—is committed by caregivers or close family members. A son is added to a checking account to help manage Mom’s bills and then starts using the account to pay off gambling debts. Or Grandpa gives valuables to the housekeeper and eventually—at her suggestion—names her in the will.

Phone scams
Someone calls, ostensibly from the IRS, saying that an individual has a tax bill that is going to rise with interest and fees unless paid immediately. Or someone calls with news that there is a problem with a credit card and they need a Social Security number and birth date to access account information to clear things up.

Phishing scams
As more seniors head online, they grow more susceptible to phishing scams. Phishing emails look as though they come from legitimate sources such as banks or credit card issuers. They ask seniors to click on a link to enter account information in order to verify recent transactions or to rectify problems with accounts. Unfortunately, the links are fake, and criminals use them to gather personal account information, which they use to drain accounts or steal identities.

So, how do you protect yourself and your loved ones from elder financial abuse? Sign up on the Do Not Call Registry. This prevents businesses from contacting you. Those that do come through either don’t know what they’re doing or don’t care. “Either way,” says Haapala, “you should not do business with them.”

Haapala also reminds seniors to conduct their personal business within the financial services system. Financial institutions have fraud protection services that limit an individual’s risk. They also have systems that make it possible to trace funds back to criminals in some instances.

Copyright 2017 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.

The 4 Best Things College Students Can Do With Their Tax Refund

For many of us who have recently graduated school or are still in school, tax season can be a happy time financially. Many people will get a tax refund from the IRS, and more will squander that money before it has a chance to make it through one statement.
Here are some ways to spend it responsibly and feel good about it.

1. Let it grow
Consider putting all of that money or part of it into a high-yield savings account. Instead of just holding on to it, why not let it grow while it’s sitting in your savings? Talk to the friendly folks at your local credit union about the right fit for your financial situation.

2. Invest
If you’ve been waiting on an injection of extra cash to take the first step, consider this your investment window. Finding the right investment opportunity for you and your financial outlook is much easier to do if you’ve got the cash on hand. Talk to your credit union to see what advice they offer for starting your portfolio.

3. Pay it off
This one ties in closely to suggestion No. 1. If you’ve got a credit card or loan accruing more interest monthly than you would gain in a CD or similar account, consider paying that off. Take a look at your obligations and see if one of them can be knocked out all at once with a portion of that tax refund.

4. Give yourself a small treat
It’s all right to spend a little on yourself. You work hard on your budget, and, hopefully, figured out a financially responsible way to spend a major portion that refund money. Take what’s left and buy yourself something fun.

Happy tax-refund season! Spend responsibly.

Copyright 2017 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.