Dear Mary: I am university-educated and have an advanced degree in the arts. This is really embarrassing: What is interest? I just don't get it. — Marty
Dear Marty: Don't worry. Your secret is safe with me. There are lots of things in the arts that I don't understand, so that makes us even.
OK, let's say you're a photographer. You have a big job offer, which will require you to borrow a camera. You'll have to pay a rental fee, figured by the hour or the day. The longer you keep the camera, the more rent you will pay. Interest is like rent on money you borrow.
Now let's say that, instead of you borrowing a camera for the day, you borrow $1,000 from your credit union. Each month that you do not return that borrowed $1,000, you must pay a kind of rent for using it, otherwise known as "interest."
By the time you repay the $1,000 after one year, at 12% interest, you will have paid back a total of $1,120.00 — the $1,000 you borrowed plus the $10 per month interest (rent) for the privilege of using money that did not belong to you ($1,000 x 12% = $120 / 12 months = $10).
Reverse that process to see how you can earn interest. You own the equipment and rent it out to others, or you lend your money to others and charge them interest. Borrowers pay interest; lenders earn interest.
That's a simplistic way of explaining the principle behind paying interest. Hope it helps.
Dear Mary: Checks I sent through the mail to pay my bills were processed as ACH payments. I didn't authorize this and expected my checks to be handled normally, as checks.
Now I'm worried that when the checks do clear my bank, the money will be paid from my account again. Can companies just do this without customer authorization? — Danielle
Dear Danielle: Welcome to the future. ACH refers to automated clearing house, a service that processes paper checks as electronic payments (think: debit card) the minute you hand that check to the merchant or, in your case, the moment it reaches its destination.
You really have no say in the matter. When you write a check, the money is no longer yours. The merchant can process your check in the most expeditious way possible. You should assume that all checks you write will be turned into electronic payments the moment you hand them over.
You are wise to be concerned about double-processing. That's why you should always watch your account carefully to make sure no checks are deducted twice. Should that happen, contact your bank immediately.
Dear Mary: I have a bank account and a credit card that just keeps accumulating late and over-limit fees. I tried to get the bank to close the account to stop the accumulation. And now I owe $900 for overdrawing my bank account by only a dollar and change.
How can I avoid having to pay a bank that didn't even help me close the account or waive part of those fees? I tried to contact them, but all they want is payment. They don't want to negotiate. — Marianne
Dear Marianne: Something doesn't add up here. You don't go from overdrawing your bank account by a couple of bucks to $900 just like that. Sure, I can see how bouncing one check or debit transaction can set off a chain reaction, but choosing to ignore the situation until it reaches $900 is unconscionable. Blaming the bank is creative but terribly inappropriate.
This is not going to just go away on its own. It's time for you to take responsibility.
Your mention of a credit card leads me to believe you have a preestablished credit line to cover overdrafts. If so, set up a repayment plan immediately.
However, on the off chance you are only assuming you have such an account when, in truth, you have become the beneficiary of the bank's "courtesy overdraft" policy, you need to move quickly to stop the bleeding. It's possible they are adding a penalty for every day you are in the red. Ouch!
Find out exactly what you owe, and tell them you will do whatever you must to repay the balance in full. Period. Then get busy selling assets and working extra jobs to see that you do. Hopefully, this is such a painful lesson that you won't have to learn it again!
Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, "Ask Mary." Tips can be submitted at tips.everydaycheapskate.com/. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book "Debt-Proof Living."
Photo credit: markusspiske at Pixabay