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Stop Getting Ripped Off: Why Consumers Get Screwed, and How You Can Always Get a Fair Deal [Paperback]

Bob Sullivan

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Book Description

Dec 29 2009
New York Times bestselling author of Gotcha Capitalism and MSNBC.com "Red Tape Chronicles" columnist Bob Sullivan strikes again to help you evade the financial traps big businesses set for unwary consumers—and shows you how to get the best possible deals every single time.

Today's marketplace is full of hidden fees, fine print, and other booby traps designed to trip you up and take your money. You may be losing big even when you think you're getting a steal! But with Sullivan's keen guidance and sensible advice, you can save money and regain control of your financial life. Clearly and concisely, Sullivan reveals
 
• why American consumers make such easy targets for corporate America (you'll be stunned, for example, at how poor our math skills are)
• how Wall Street will skim off one third of your retirement money (avoid this trap with Sullivan's new "Pitfall-Proof Pyramid")
• the myths behind credit-card reward programs and "the 21st-Century Bank Account"
• the real numbers to focus on when buying a new car
• why you should spend more time shopping for your mortgage than your home
• the key questions you must ask before buying life insurance
• the secrets to saving for college and paying off student loans the right way
• the best deals on cell phones and pay-TV service
 
With Sullivan's empowering message, financial savvy, and knowledge of consumers' wants and needs, you can outsmart the system, keep your hard-earned cash, and finally stop getting ripped off. And you'll become part of a growing grass-roots movement to rein in the abuses of corporate America before consumers get hurt by another boom-and-bust cycle.
 

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Product Details

  • Paperback: 320 pages
  • Publisher: Ballantine Books (Dec 29 2009)
  • Language: English
  • ISBN-10: 034551159X
  • ISBN-13: 978-0345511591
  • Product Dimensions: 13.1 x 1.6 x 20.3 cm
  • Shipping Weight: 249 g
  • Amazon Bestsellers Rank: #1,867,288 in Books (See Top 100 in Books)

Product Description

About the Author

Bob Sullivan has been a reporter for nearly two decades. For the past twelve years, he has covered computer crime and consumer affairs for MSNBC.com. Today his work appears on MSNBC.com's "Red Tape Chronicles" blog. He also appears regularly on MSNBC television, NBC Nightly News, the Today show, and various local NBC affiliates. He is the winner of the prestigious 2002 Society of Professional Journalist Public Service Award for a series of articles on online fraud. His first book, Your Evil Twin: Behind the Identity Theft Epidemic, investigated the root causes of credit card fraud and other identity-related crimes. His second book, Gotcha Capitalism, exposed the hidden fee economy that attacks family budgets. He lives in Maltby, Wash. with his golden retriever, Lucky.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter One


The Twenty-First-Century

Checking Account


I recently overdrew my checking account at Chase Bank by 60 cents, and my unemployment check was set to be electronically deposited later the same night. The overdraft would only exist for a few hours. The bank charged me $35 for a 60-cent overdraft. If this were interest, it would be 6000%, but since it is a fee, it is okay.

--Kate Hank,

a Red Tape Chronicles reader

Once upon a time, a checking account was simply for depositing paychecks and writing checks. As long as you noted the checks in a register, you were safe. If you bounced a check, it probably was your fault.

Those days are long gone.

Now, check writing is probably the least of your checking-account worries. Today, your checking account can be accessed at least six ways--ATM withdrawals, signature debit purchases, PIN debit purchases, online bill pay, and other electronic transactions such as wire transfers. And, of course, checks. In industry terms, your checking account has far more velocity now, making it far more vulnerable to hackers, and, more important, far more difficult to keep track of your balance.

The result? In 2007, Americans spent $17.5 billion making banks richer through overdraft charges, probably the most lucrative hidden fee in America. The notion of a free checking account is largely a charade. Banks created the overdraft phenomenon and stoke it by quietly adding features such as "courtesy overdraft protection," all the while tightening the screws more and more with each passing year. Overdraft fees now cost nearly $40 per transgression, and because the fees are often "stacked"--one overdraft leads to another, then another, and so on--one single lapse can easily cause a $5 hamburger purchase to ultimately cost $200. That means it's more important than ever to protect yourself, and your checking account, from heading south of zero.

It's not easy. There are other bank-designed booby traps, such as "Check 21." This new electronic processing system for checks means banks get your money instantly when someone cashes a check you write (no more "float"), but can still hold on to checks you deposit for long stretches of time (up to eleven days). In short, the money comes out much faster than it goes in. That's a recipe for overdrafts. Banks even vary by deposit type how quickly they credit your account when you deposit money. (Hint: At one major bank, online transactions are credited at 10:45 a.m. every day, in-person teller transactions aren't credited until 2 p.m., and deposits at newer ATMs don't make it until 8 p.m.!) Not knowing these rules can be costly.

But how would you know them? In 2007, 20 percent of banks were in violation of the Truth in Savings Act, a federal law requiring clear and conspicuous disclosure of their fee schedules. Quick: What does your bank charge for an overdraft?

In total, Americans donate $36 billion in fees to U.S. banks every year, or about $400 for every adult American. Virtually all of that spending is unnecessary. Anyone using the right tricks can have checking and savings accounts for free. This chapter will show you how.

BALANCING YOUR CHECKBOOK MONTHLY?

NO, DAILY

You'll hear plenty of old-fashioned advice about balancing your checkbook to prevent accidental overdrafts. If you're the type to do that every month, God bless. Software can help, too. But balancing a checkbook today is so much harder than it used to be; and even a monthly balancing won't really protect you from the $39 overdraft fees I'm talking about. Anybody can make a string of unexpected debit purchases during a month of bad luck (but not if you follow my advice and don't make debit purchases). Anyone can misunderstand checking-account deposit-credit policies. Anyone can accidentally click twice while using online bill pay and suddenly find their accounts unfunded.

Checking accounts are misnamed at this point--their real name should be something like "electronic transaction accounts" or "e-accounts." And for these accounts, we need a whole new branch of personal accounting.

In a moment, I'll tell you that you don't really have to balance your checking account to the penny every month. I want you to set up your finances so they run on automatic for you, without any fear of overdraft fees, and I'll show you how. But first, I want you to consider the simple proposition that change is good.

Here's the fundamental flaw introduced into your life by the debit card: There are too many transactions yanking money out of your primary wealth-holding account. For the vast majority of consumers, the modern checking account is the staging ground for most of their money. Paychecks are automatically deposited into it; money sits there earning paltry interest while you wait to pay bills, then you spend it. Think about it; if your after-tax paycheck is $1,500 twice each month, then $36,000 flows into your checking account every year. What do you get for that? If you have to claim more than $20 in interest earning on your federal taxes each year, then consider yourself lucky. My point is this: Whatever bank you use for direct deposit of your paycheck, you are giving that bank a hell of a deal. Why be loyal? If you suffer an overdraft fee and your bank isn't playing ball with you, break off the relationship. Join a credit union or a smaller bank. These almost always have lower fees, less brutal policies, and higher interest rates. Save yourself two overdraft fees and earn yourself an extra 0.5 percent interest, and you've just pocketed more than $200 annually. Then buy your spouse something nice for Christmas. That's sure worth the trouble.

But even if you don't switch, the knowledge that you can switch is really valuable. When you're having a protracted conversation with a bank manager about excessive fees, the most convincing argument you have is the front door, because if you announce you are walking out the front door, you'll often find your foe will come around to your point of view.

One special note about switching banks. Many of the suggestions I make rely on effective use of online banking tools. These are still evolving, particularly at small banks. Most are now free, but they are not all created equal. Before you sign up with a new bank, ask to see a demonstration of its website and its online bill-paying tools. Ask friends who use the site. If a bank's online tools are hard to use or come with any fees attached, you should probably keep shopping around.

Now, back to the concept of the everything-but-the-kitchen-sink checking account, the place where you "stage" all your money. This is a bad setup and I want you to change it immediately. You should never make ticky-tacky purchases or weekly cash withdrawals from the main staging place for your money. That's a recipe for disaster. Eventually, you're going to trip up, screw up, and be hit with a fee. You're also going to lose track of your balance and the normal ebb and flow of money into and out of your account. Using one account for all these things is a big mistake.

What you need is an allowance debit card.

Here's what I mean. I want you to set up a second bank account, either at your primary institution or, even better, at a second bank. Then each month, I want you to automatically send yourself spending money. That's the only account I want you to use for debit purchases or ATM withdrawals. In fact, you can go to your primary checking-account bank and ask them for an old-fashioned "ATM card" rather than a debit card to help you avoid accidental purchases out of your number one account.

When you divorce all those workaday transactions away from your "staging" account, a funny thing happens: You will be stunned at how easy it is to balance your checking account. One or two deposits each month, then five or ten checks/payments each month, and that's the end of it. No more hunting through your purse for ATM receipts. No more hours spent wondering where that other $2.23 went.

Here's how it would work in the checking account we've already described. Each month, there are two deposits totaling $3,000. On the first of the month, move $500 from your holding account to your spending account. During each month, make your payments as they come up. Here's what your primary checking account would look like:

When was the last time your checking-account monthly statement looked that neat and clean?

Obviously, your own monthly recurring payments will vary, but I want to call your attention to a few other things about this monthly payment sheet. For starters, notice how the payments are lumped together. That's no accident; nor is it due to some convenience initiative by the electric company and the cell-phone company. Some of your bills are due at around the same time of the month. By batching them together, you can keep your grasp on how much you are paying all at once. And by lumping them into two sets, you can essentially assign certain bills to check A and others to check B each month. This makes it easier to make sure you are running from ahead instead of running from behind.

Notice the savings payment comes at the happy end of the month, when you have something left over, which leaves you a little breathing room for unexpected emergencies. Many personal-finance columnists urge consumers to "pay themselves first," which is nice if you can do it. But ten months of extra interest earned by paying yourself first can be ruined by one bout with overdraft fees, so I wouldn't go that route unless I had a nice cushion to work with every month.

The big message here is that you have a rough idea of your cash flow all month long. If it's the beginning of the month, you know you have $1,500 minus $500 in living expenses and about another $700 in bills; if it's the end of the month, you know you have $1,500 to work with and $1,400 in bills.

The key to all of this, of course, is that you never dip below the equator and turn that balance red. You always know what you have, and you do...

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Amazon.com: 4.4 out of 5 stars  18 reviews
29 of 29 people found the following review helpful
5.0 out of 5 stars savvy ways to outsmart the system Jan. 13 2010
By Christine Gacharna - Published on Amazon.com
Format:Paperback|Verified Purchase
Bob Sullivan is on a mission to educate Americans and change the way we view and spend our money. He genuinely writes to help people; in this case, help people realistically improve their financial situation simply by using the money they already have in smarter, more creative ways.

He writes as if he has an established relationship with his readers. (He does.) He made me come face to face with my own quirky habit of sloughing off responsibility for paying attention to the little numbers. As he explores throughout the entire book, it's those little numbers that add up, ultimately creating opportunity for the long term financial stability that many Americans crave these days.

But he does more than just point out the little numbers and why they are important. He actually takes it further and explains the system, and then how we as consumers can use that knowledge of how the system works to move our money smartly and avoid paying unnecessary fees. There is in-depth explanation of how recent changes in the banking system throw some of our conventional thinking about credit cards, checking accounts and ATM transactions upside down, and what we can do as account holders to maximize our benefits and eliminate financial penalties. As a consumer, I can refer back or skip ahead to different sections of the book as/when needed for specific tips on buying a car, shopping for a mortgage, paying for college, negotiating cable TV and cell phone service companies, whatever is most relevant to my daily life that will translate to long-term financial health.

My guess is that I will easily pocket the cost of this book time and again simply as a result of being educated by it and knowing I have the option to go back and refer to it as needed.
18 of 18 people found the following review helpful
5.0 out of 5 stars A comprehensive financial guide that will empower consumers Jan. 18 2010
By Joseph Ganem - Published on Amazon.com
Format:Paperback
In Stop Getting Ripped Off, Sullivan provides an outstanding, step-by-step guide that average consumers can follow to take back control of their financial lives. The economic turbulence of recent years has shown that when it comes to finances, Americans need to vastly improve their decision-making. In Part I of the book, many of the root causes of poor financial decisions are identified. Included in this list are: the failure of Americans to understand basic math, the failure of our education system to teach financial literacy, and our collective failure to recognize and avoid the kinds of irrational economic decisions that have been well-documented by behavioral economists. This makes for fascinating reading, because I don't think consumers fully realize, just how much their lack of knowledge on many of these issues is costing them in the marketplace.

In Part II, Sullivan takes consumers step-by-step through the most important financial decisions that they make, such as buying a house, buying a car, choosing a credit card, or a student loan. This section is packed with money-saving tips and practical advice. Some of his adages are counterintuitive, but upon reflection highly accurate. For example, when buying a home, the mortgage is more important than the actual house. Accordingly, homebuyers should spend more time shopping for mortgages than they do homes. Other advice includes: students should not borrow more to go to college than they can expect to earn during their first year of employment; and responsible credit card users hurt their credit score by holding too few credit cards.

Part III is comprehensive plan for securing your financial future. As Sullivan explains, the surest way to avoid getting ripped off is to have the ability to say no to any offer. Consumers with precarious finances are the ones offered loans with the most unfavorable terms. A consumer with a solid financial footing is in a position to walk away from many of the unfair, and deceptive offers Sullivan exposes.

This book is a call to save our system of free-market capitalism that has been endangered by recent events. A choice-based economic system, like a choice-based political system, needs an informed, enlightened, and engaged citizenry to function. I highly recommend this book. I hope it will be widely read, and lead to positive and permanent changes in consumer behaviors.
5 of 5 people found the following review helpful
5.0 out of 5 stars Helpful and Informative Jan. 25 2010
By Mimi Mouche - Published on Amazon.com
Format:Paperback|Verified Purchase
So far, the areas that I needed help with have been EXTREMELY enlightening with excellent suggestions/ideas/considerations. This is an excellent resource book for the confused consumer!!

Understanding the Cell Phone dilema was especially helpful! Satellite vs Cable TV will be my next focus. Suggestions regarding how to deal with vehicle purchases didn't have any new insights (for us), but OTHER mysteries have been unraveled.

As various contracts (especially) come up for renewal, I plan to use this book as my guide to better understanding and the opportunity to negotiate a more positive relationship with service providers.

A TIMELY BOOK!
5 of 5 people found the following review helpful
5.0 out of 5 stars More than pleased....good overall info March 21 2010
By Eugene Lattanzi - Published on Amazon.com
Format:Paperback|Verified Purchase
I was in the process of buying a car when a friend/co-worker pointed out this book to me which I immediately purchased from Amazon. Come to find out that this book paid for itself many times over when I did finally purchase a car which had the incorrect sales tax added in which I picked up on because of this book. Lots of good helpful hints which everyone can use!
4 of 4 people found the following review helpful
5.0 out of 5 stars A Must Read for anyone who buys anything March 15 2010
By B. R Sullivan - Published on Amazon.com
Format:Paperback|Verified Purchase
Bob Sullivan (no relation) manages to take what one would expect to be a boring topic and makes it not only a good read, but a fascinating page turner.

I consider myself to be pretty financially savvy, but learned several new, practical tips in his chapters on managing retirement funds, credit cards, and purchasing a cell phone plan. Bob also includes additional chapters on topics such as purchasing a house, student loans, purchasing cable, and a few other things I'm forgetting at the moment.

However, even if you know everything about all of the above topics, the book is still a must-read for his opening discussion of how and why corporations are able to "rip people off" and the appalling financial illiteracy of the US population.

While I did check this book out from the library I would actually recommend purchasing it as it will come in handy as a reference book for many future purchases.

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