Mary Hunt: Become your own loan shark to build your funds
Can you imagine wanting to pay outrageous amounts of interest? Do you ever see yourself gladly making monthly payments to a greedy finance company? Would you like to love a loan shark? Impossible?
No, it's not. All you have to do is become your own banker. You'll be borrowing from yourself, making payments to yourself and collecting high rates of interest — all from you, for you.
The original idea of the credit union was to get the little person out of the clutches of the big money institutions. Being your own banker simplifies the credit union strategy to just one person: you. And when you're wearing the loan officer hat, the borrowing and repayment benefit only you. What a savings program!
So, how does it work, you ask? First, open a special savings account. Don't get this confused with your Contingency Fund or investment programs. You already should be saving consistently for the future in those ain't-nobody-ever-going-to-touch-it kinds of accounts. This is a special savings account that you will manage differently.
You can start your new account with anything, but you should feed it with a weekly contribution for a while. If you can put in $20 a week for 12 months, you'll have about $1,000 after a year.
Now, let's say you need to borrow $600. A typical finance company would charge a whopping 21 percent interest, or $126, to borrow that amount. They'd "let" you pay it back at the rate of about $30 a month for two years, for a total payback amount of $726.
You can make it easier on yourself. If you charge 18 percent interest on your loan ($600 times 18 percent equals $108) and divide it into 12 equal payments of $59 your loan will be paid off in just one year, "costing" a total of $708. Suddenly, the greedy finance company is you.
If you keep up your weekly deposits of $20 while you pay back your loan, you'll have something like $2,150 in the bank at the end of the second year (the $400 balance in the account, the $708 you paid back, plus the $1,040 you deposit in year two).
After you've paid back the first loan, perhaps you'll want to borrow $1,000.
The greedy finance company would charge about $255 to do that. If you charge yourself $180 and make monthly payments of $50 for two years (or $100 a month for one year), you'll wind up with well over $3,000 in your account.
As the borrower, treat yourself the same way that the finance company would. Demand timely payments. Unless you're terribly hard on yourself, it's not going to work. You'll default. And just imagine how that will work on your psyche.
But if it does work, you'll be living the life of a banker — buying things you want and piling up the dough. What a way to save!