Debt Free

It’s kind of funny, really. Many people who scoff at payday loans and would never use a payday loan to supplement their finances think nothing of using another financial instrument that’s basically the same thing. Loans with interest rates bordering on usury and very short terms are a staple of the payday loan industry. Even if the interest rates themselves aren’t that high, the APR, which includes the associated fees, shows that the effective annual interest rate can reach around 400%.

So what is this other bit of financial razzle-dazzle so many are partaking of these days? They’re the loans that many folks are taking out in order to spend their income tax refund today, rather than next month. Known as tax anticipation loans, they are offered by many income tax preparation services, such Jackson Hewitt (who just agreed to pay $5 million in fines and restitution for incorrectly marketing such loans to Californians) and H&R Block. Around 10 - 12 million American taxpayers every year take preparers and finance companies up their offers of tax anticipation loans. If J-H paid $5 million in California alone, it makes you wonder how much cash they really should be paying nationwide.

Refunds are available quite rapidly these days due to the option offered by the IRS of e-filing your tax return. Even that’s not fast enough for some. In many cases it’s because of the same mentality that causes so many people to run up mountains of credit card debt. They want to spend the money now. That’s it, plain and simple. In some cases there are financial emergencies to deal with, but more often than not, it’s a pure lack of financial restraint coupled with poor fiscal discipline.

Those traits combine to make many Americans just throw money away just so they can get their money a little faster. That’s what’s so discouraging. So many people are paying extra to get what is, after all, their money. Think long and hard before you take this financial road. The money you’re throwing away is your own.