Hope they took out the life insurance instead of the accidental death insurance. Talk about debt relief… (Photo: flickr.com)

Debt relief is something many consumers are longing for in this difficult economy. The recession has brought many people’s finances into turmoil and they are left trying to make ends meet every month. Market research shows that some commonly purchased items are necessities, but research is showing that other items aren’t. Here are some items consumers can reasonably cut out of their budgets to save money without jeopardizing their future.

Oil Changes

There is the old saying, “Change your car’s oil every 3,000 miles.” Although this is a commonly accepted theory, there is no substantial evidence to prove it to be true for every car. The owner’s manual of every vehicle will detail the exact time when to change oil. Manufacturers state that oil changes every 5,000 to 7,000 miles is totally acceptable. Decreasing the two extra oil changes yearly can save anywhere from $50 to $90.

Extended Warranties

Many dealers push customers to buy extended warranties for their vehicles. This is an expense that easily can be cut out of a budget because it normally isn’t worth the cost. Car buyers can add an extended warranty to their vehicle when the existing warranty is just about to expire, saving a lot of money. The other good tip is when a consumer reaches the end of the standard warranty, they will have a good idea of how the car runs or if there are any potential problems. They will be better suited to understand type of coverage they need for the extended warranty.

Accidental Death Insurance

Another expense that can easily be stripped from a budget is accidental death insurance. Statistically, only five percent of deaths are classified as “accidental” and actually receive a payout. Consumers would be wiser to invest in a life insurance policy because these pay out regardless of cause.

Brand Name Medications vs. Generic

Purchasing brand-name prescriptions rather than generic can also be used to save extra money for debt relief. In general there is no difference between the quality and effectiveness of the two, yet the generic drugs cost considerably less. Dr. Theoman, a physician in Montgomery, Alabama agreed: “I always tell my patients to substitute… there are rare cases where options aren’t available or suggested, but for 90 percent of medications I give out, they can save a lot of money with generics.”

Buying Premium Gasoline

If the owner’s manual doesn’t specifically instruct owners to use premium gas, then there is no need to pay extra. Save the extra cash and use regular unleaded. In the end, using a higher quality gas may even hurt a car’s performance, because it’s harder to ignite and the higher-octane can make a car’s performance less smooth. Save the extra money and use it for savings or bills.

Ways to Save

These are just a few ways for consumers to save their money. As analyst Gary Brentman of The Economist stated, “There are many misconceptions out there that have been passed down over the years. Because of the difficult economy, many of them are quickly being debunked.” Consumers need to be wise and do research on small ways to save. Just because the media advocates a product or service, that doesn’t mean it is truly beneficial. Saving a few dollars here and there can do wonders for consumer debt relief.

Bob thought he was doing a clever thing when he invested $50,000 in a viatical contract. He was told he would be making a humanitarian investment by purchasing the life insurance policy of a terminally ill person and that he could expect a large profit for himself.

Can you say scam?

But the insured person wasn’t really sick at all and Bob ended up paying the policy premiums to avoid losing his investment. Bob became a frequent flier at Payday Loans in order to meet the premium paydays.

What is a Viatical?

A viatical insurance settlement is an agreement in which a third party buys a life insurance policy from an insured person and thus becomes the legal beneficiary of the policy. The insured person receives an immediate cash payout and in most cases the buyer of the policy agrees to continue to pay the premium on the life insurance policy until the death of the insured.

How Viaticals Are Supposed to Work

When you buy a viatical, you purchase the life insurance policy of a terminally ill person at a discounted price from a viatical broker who takes a commission. The ill person gets a chunk of money to help pay expenses or take a cruise and the investor gets the full face value of the policy when the person dies. Brokers also sell a spin-off of viatical settlements, called life or senior settlements, in which the investor is offered the life insurance policy of an older, healthy person.

Helping others?

The investors are told they are helping older people stay financially secure in their golden years. The pitch is based on a high rate of return—often 20 to 40 percent—and a humanitarian opportunity to help a sick person, a combination appealing to older investors.

Watch out

Viaticals can end up costing investors a lot of money. It is known to be one of the top ten investment scams. Securities regulators are “concerned that the inherent risk of viatical investments – gambling on when someone will die – aren’t being adequately disclosed, and second, many investors have been outright defrauded by some viatical companies or their sales agents.”

Action taken

A Florida Grand Jury in 2000 found as much as 40-50% of the life insurance policies viaticated by viatical settlement providers may have been procured by fraud. The Securities and Exchange Commission has taken action against one company that allegedly defrauded 30,000 investors of $1 billion.

Here’s how the investor can lose money:

• With improved medical care, the ill or older person may live longer than expected. As the new owner of the policy, you have to pay the premiums to keep the policy in force. You tie up your money longer and your profit declines the longer the person lives.
• Sometimes the insured person is not ill at all, so the investor will need to make insurance payments, maybe for years, or the investment is lost.
• There may be some technical problem with the insurance policy or it may be fraudulent and the insurance company will later refuse to pay the settlement.
• The insurance company or viatical settlement company may go out of business along with your invested money.
• Some brokers have sold the same policy to multiple investors.
• The insured’s heirs may challenge changes made to the policy.

Protect Yourself

It is important to learn all you can about a viatical before you invest. Failure to research the investment could result in financial disaster.

Feeling like a slave to debt? Debt consolidation can help.

In yesterday’s article “Debt Consolidation | What Are Your Options?” We identified some criteria that would help you determine whether or not debt consolidation was something that you should pursue, or if payday loans could help you out.

We also listed a few possible solutions you could begin pursuing if you felt you were indeed a candidate. These were credit card transfers, home equity loans and borrowing money or small interest loan from a noted family member or friend, or payday loans through a reputable lender.

If you didn’t feel that these were options worth pursuing, perhaps today’s article will present a few more solutions for debt consolidation that will appeal to you a little more.

Borrowing Against Your Life Insurance

If you happen to have whole life or permanent life insurance and have been paying into it for some time, you may be able to borrow against it. Obviously you signed up for your life insurance to help secure the financial future of a loved one in case of an accidental or premature death, so consider the consequences carefully. The nice thing here with whole life insurance is that you don’t have to pay back the whole amount borrowed if you aren’t able. It simply comes out of what would be given to the beneficiary upon your passing.

Your Local Credit Union

Credit Unions offer loans at interest rates that are typically lower than that of most standard banks. If your credit is still decent and you have identified your need for help before defaulting on your accounts, you may be able to apply for and get approved for a loan to pay off your creditors. Since most consumer credit card accounts carry interest rates around 20% , you may be able to lower your monthly payment and pay your debt off quicker with a loan from a credit union which will typically carry interest rates of around 10%.

Consumer Credit Counseling Agency

For many burdened by debt, this may be your best option. Nonprofit consumer credit card agencies provide counselors who work with and understand your situation as well as your need to get out of it. These counselors also have experience in dealing with and negotiating with creditors. With the stress and burden that you are already likely feeling, this a solution that will take care of the stressful leg work for you.

Typically, these agencies will take into account, organize and restructure all your outstanding debts as well as the payments you are making on those debts. They will likely get any accrued late fees you have accumulated waived and get your interest rates lowered as well.

Negotiate with your credit lenders on the premise of default

Be upfront with your creditors. If you feel you are about to go into default on your home mortgage, credit card or other consumer credit accounts, talking with your lenders may be all it takes to get you back on track.

Your creditors do not wish to see you go into default. If you express that you are on the verge of defaulting on your accounts or even worse, going bankrupt, your creditors are very likely to throw some more favorable terms your way.

Creditors are very much aware of the consequence of you going into default or bankruptcy. If this happens they will lose everything that you have left to pay them. If they can keep you paying your debt by extending you more favorable terms, they will, and payday loans may be worth looking into if you only miss a payment here or there.

No matter what your means of consolidation are, finding one quickly is essential to gain control of your debts before they begin controlling you.

On behalf of Personal Money Store, we wish you financial health and prosperity.