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What Is Check-Kiting? How to Avoid Getting Scammed

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Check-kiting is the illegal act of writing a check from a bank account without sufficient funds and depositing it into another bank account. Then, you withdraw the money from that second account before the original check has been cleared.

In some cases, the scam is performed by an individual who is aware that the funds won’t cover the check but hopes to gain a personal profit by deceiving the financial institution. Other times, check-kiting can occur in the form of a scam where counterfeit checks are used to deceive others.

How check-kiting works

Check-kiting is also known as “taking advantage of the float.” Float time is the amount of time from when an individual submits a check as payment to when the individual’s bank is instructed to move the funds from the account.

Many instances of check-kiting involve scammers taking advantage of the float for their own personal gain, whether to make payroll or keep the lights on for their own business. There are also scenarios where you could encounter check fraud as a consumer.

Sometimes, major check-kiting schemes even make headlines. For instance, a South Carolina businessman pleaded guilty in 2018 for running a Ponzi scheme and a check-kiting scam that involved $5 million a month. He told investors that he had leads on auto sales from local credit unions and convinced them to provide financing to buy the cars in exchange for $800 in interest for each car sold to credit union members. He then deposited and withdrew funds from the investors between multiple local bank accounts in a check-kiting operation.

Check-kiting examples

  • Simple check-kiting: Say, for example, that you write yourself a check for $500 from checking account A, and deposit that check into checking account B — but the balance in checking account A is only $75. Then, you promptly withdraw the $500 from checking account B. This is check-kiting, a form of check fraud that uses non-existent funds in a checking account or other type of bank account. Some check-kiting schemes use multiple accounts at a single bank, and more complicated schemes involve multiple financial institutions.
  • More complex check-kiting: In this scenario, a person could open checking accounts at bank A and bank B, at first depositing $500 into bank A and nothing in bank B. Then, they could write a check for $10,000 with account A and deposit it into account B. Bank B immediately credits the account, and in the time it might take for bank B to clear the check (generally about three business days), the scammer writes a $10,000 check with bank B, which gets deposited into bank A to cover the first check. This could keep going, with someone writing checks between banks where there are no actual funds, yet the bank believes the money is real and continues to credit the accounts.
  • Consumer check fraud: Say you’re selling a piano on an online site like Craigslist or in a resale group on Facebook. A scammer could write you a check for an amount greater than the price you asked for, and then later “catch” his mistake and ask you to wire back the difference. However, the scammer’s check later bounces, and you’re on the hook for the entire amount. The scammer and the piano disappear.

How to avoid check-kiting scams

Three important steps to follow to avoid falling victim to check scams are:

You should also resist any pressure to “act now” — a sense of urgency is a red flag. Furthermore, keep in mind that if an offer or deal seems too good to be true, your instincts are probably right.

When it comes to check-kiting, banks themselves also keep an eye out for some specific red flags. These include a bank account with a large number of checks deposited each day and many checks withdrawn from the same bank account. Other indicators of potential check-kiting could be large amounts of cash in an account that has yet to clear the paying bank and deposits made through multiple bank branches.

The consequences of check-kiting

Check-kiting is illegal and is considered fraud. The penalties could vary, and they often depend on the bank or credit union and the severity of the act.

Sometimes, if the amount of money is paid back, the bank will allow the account holder to keep the account and perhaps remove some features, such as the ability for the account holder to deposit personal checks. Other times, the check-kiter could be reported to ChexSystems, which is a consumer reporting agency like Experian, TransUnion and Equifax. Check-kiters could also face legal penalties and imprisonment.

When in doubt, stay away from anyone whom you suspect might be involved in this type of scam. Keep in mind that check-kiting is intentional, and the individual knows that they do not yet have the funds to cover the check. When checks are used as a form of unauthorized credit, consequences will surely follow.

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Strategies to Save

How To Determine and Calculate Your Net Worth

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You’ve probably read about the sky-high net worths of the rich and famous, like Jeff Bezos ($131 billion), Bill Gates ($96.5 billion) and Warren Buffett ($82.5 billion). But as we all know, not everybody can be a billionaire.

Your personal net worth is a combination of what you own (your assets) minus what you owe (your liabilities). It’s important to know this number, because it gives you a clear picture of your financial situation. This helps shape your financial goals and measure what progress you’ve made on these goals over time.

How to calculate your net worth

To calculate your net worth, make a list of the cash value of all your assets. These include:

  • Money in your checking and savings accounts
  • Your investment accounts
  • Business interests, such as partnership and LLC interests
  • The market value of your home
  • The resale value of your car
  • Any life insurance policies you may have
  • Personal property, including jewelry, art, and furniture

Then make a list of the total amounts you owe. This includes:

  • Your home mortgage
  • Unpaid balance on your car loan
  • Credit card balances
  • Student loans balances
  • Any unpaid bills

Add up both lists to obtain the total value of your assets and the total amount of your liabilities, then subtract the total of what you owe from your assets — this number is your net worth.

There are several calculators and worksheets available online to help guide you through this process. Consider using Charles Schwab’s worksheet, Kiplinger’s calculator, or CNN Money’s calculator.

By way of example, here is a financial snapshot of a doctor’s net worth. With $100,000 in savings, $100,000 in equity in her home, and $280,000 in a retirement account, our example doctor has $480,000 in assets. However, if she has a remaining unpaid mortgage balance of $400,000, $130,000 in student loans left to pay off and $10,000 in credit card debt, she has total liabilities of $540,000. Therefore, she has a negative net worth that comes out to -$60,000.

Compare your net worth

U.S. households in 2016 had an average net worth of $692,100, according to the Federal Reserve’s Survey of Consumer Finances (SCF). This number appears high because that average is skewed by the net worths of the super wealthy, like the aforementioned Bezos, Gates and Buffett — however, the median U.S. household net worth in 2016 was significantly lower, at $97,300. Check out the breakdown of U.S. median net worth by age, which may be more helpful to put your own number in context.

U.S. median net worth by age in 2016
35 and younger$11,100
35 to 44$59,800
45 to 54$124,200
55 to 64$187,300
65 to 74$224,100
75 and older$264,800
Source: The Federal Reserve’s Survey of Consumer Finances (SCF)

Track your net worth over time

Since your net worth provides a snapshot of how you’re doing financially, it’s helpful to track this number over time. As you compare your number over the years, you’ll want to do your assessment on a regular basis.

Experts recommend that you track your number regularly, on a quarterly, semi-annual or annual basis. Staying consistent in your monitoring will give you a good sense of whether your personal finances are improving or declining over time.

It’s also helpful to keep a long-term perspective when it comes to money you’ve invested in the stock market. Compare your stock earnings or losses to market conditions. If you have money in a retirement fund that you don’t plan to access for, say, 30 years, it’s not as important if the value of your investments declined slightly over one year’s time. Keeping a long-term perspective for investments in retirement accounts could pay off over the long haul.

Other aspects of your personal finances will remain within your control, like budgeting and saving. The good news is that the earlier you begin to track your number, the more time you have to improve it.

How to improve your net worth

There are a number of steps you can take to improve your number. Implementing a daily budget is a great strategy. Saving more than you spend on a daily, monthly or annual basis can help to quickly grow your number. Looking for a job with growth potential can also help to improve your finances over time.

When you’re taking a new job, negotiate for a higher salary and regularly ask for pay raises. In addition, maximizing employer benefits like 401(k) matches, health savings accounts and company stock can also help to boost your number.

Consider investing in the stock market, as well as in your own human capital by taking courses to improve your skill sets and land higher-paying job positions or promotions in the future.

The last word on your net worth

Knowing your number helps provide you with a full picture of your personal finances. Once you understand your number, you can make adjustments to your financial life that help grow your money. Together with tracking your number, remember to maintain an excellent credit score, which gives you better access to low-cost credit, and keep your emergency fund topped up to help cope with the inevitable bumps in the road.

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Pay Down My Debt, The Psychology Of Money

Debt, Its Emotional Toll and How to Tackle It

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Debt can feel overwhelming, and studies are increasingly showing that it can lead to a decrease in happiness and life satisfaction, anxiety and even physical symptoms like headaches or loss of sleep.

A study of more than 1,000 student loan borrowers — conducted by Student Loan Hero, which, like MagnifyMoney, is owned by LendingTree — found that:

  • More than 61% of respondents admitted that they’re afraid that their student loan debt worries are spiraling out of their control.
  • More than 70% said they suffer from headaches because of their debt concerns.
  • Some 64.5% of respondents have lost sleep over their debt.
  • 67% reported physical symptoms of anxiety that stemmed from the stress of their student loans.

The study showed a direct correlation between having debt and detracting from happiness. In fact, results revealed that carrying student loan debt is nearly as significant as income when it comes down to predicting financial concern and evaluating life satisfaction.

What studies show about how debt affects your health

Indeed, money can buy happiness, but how much debt one has also weighs heavily into the equation, according to a study from Purdue University. An online college alumni sample of 2,781 individuals from the United States revealed that student debt could take a significant toll on one’s life satisfaction over the long term.

Another survey conducted by the Harris Poll on behalf of the American Institute of Certified Public Accountants (AICPA) showed that 56% of Americans with debt admitted that it negatively impacted their lives. Twenty-eight percent of the 1,004 American adults surveyed said their debt caused stress about their everyday financial decisions, and 21% said it caused tension with their partner.

It may be that such accomplishments as a promotion at work may be marred by knowing your debt is eating up your higher earnings. High debt may also be such a financial burden that borrowers are unable to save for retirement, for emergencies or even such pleasures as a vacation.

High-rate debt can be particularly difficult to carry. Seeing your monthly payments largely going toward fees can make you feel as though you’ll be trapped in debt forever. And if that debt isn’t allowing you to save money, your stress may only grow if you’re suddenly struck with a financial emergency that causes you to take on new debt.

6 tips to dealing with your debt

If you’re dealing with debt and it’s taking a toll on your health, what can you do?

“The first thing a person needs to do is take a close look at how they got into debt in the first place,” advised Carolyn McClanahan, M.D., CFP, who began her career as a physician and is now founder of a financial planning group called Life Planning Partners LLC, based in Jacksonville, Fla. “They should identify what triggered the situation or any bad habits that might have led to their debt, so that they don’t repeat those things going forward. Then, they need to make an actionable plan to figure out how to get out of debt.”

Consider these tips that could help you better handle your debt.

1. Thoroughly research your options

When tackling your debt, it pays off to research your options for dealing with debt. For example, federal student loans come with borrower protections that may help you if you’re struggling with money. You may be eligible for an income-driven repayment plan, which would adjust your monthly payments based on your income. You may also qualify for student loan forgiveness or have the opportunity to defer payments for a period of time.

If you have a mortgage, you could extend your repayment term without refinancing. This is known as mortgage recasting. By extending your repayment term, you could lower your monthly payments, freeing up cash to deal with debts that are a higher priority.

Credit card debt doesn’t have to be such a burden, either. If you lost your job, it may be beneficial to call up your credit card issuer. You may be able to get on a hardship program that reduces your payments for a time. Or, if you have decent credit, you may qualify for a balance transfer credit card with a promotional 0% APR. For a fee, you could move your credit card debt onto your new card to avoid interest charges for a period of time. Pay off that debt before the promotional period ends and you could save a lot of money on interest.

2. Don’t be afraid to negotiate

Many people fail to recognize that there are many instances where you can negotiate and in turn, lower your debt. Take medical bills, for example.

“It can really help to negotiate with the medical provider,” said McClanahan. “If you’re willing to pay them real money over time, you can end up paying pennies on the dollar of what you own,” she said. In addition to negotiating, McClanahan suggested asking hospitals or health centers whether they have any financial assistance programs that you might qualify for.

Furthermore, if you’re accepting a new job offer, don’t be afraid to negotiate a higher starting salary, which in turn could help you windle your way out of debt faster. Research the job market and consider making a compelling case as to why you deserve a higher salary.

3. Take it one debt at a time

If your debt is stretched across multiple credit cards or loans, you may be overwhelmed just by the thought of them. But if you can focus your attention on making extra payments on just one debt, it could help you see some quick wins.

“You ideally want to start by paying off the debt with the highest interest rates first,” McClanahan said. Repaying the debt with the highest rate helps you reduce how much interest you pay over time. Often, this means you’ll focus extra payments toward a credit card balance. Once that debt is paid off, you start making extra payments on your debt with the next-highest rate.

However, you may instead choose to pay off your debt with the lowest balance. This would result in a fast win that will motivate you to keep making extra payments on your debt.

4. Consider therapy

Seek the help of a psychologist or another mental health expert if your concerns about debt are negatively impacting your day-to-day life. A licensed health expert can help you confront your anxieties head on and offer strategies for dealing with them effectively. Also, reach out to your personal network and let those close to you know that you could use their support. It helps to know that you’re not in it alone.

Low-income individuals may want to seek the help of a sliding scale therapist, who will adjust their fees to make therapy more affordable. This can be found on mental health directories like GoodTherapy.org. There are also clinics that provide low-fee or free mental health services. To find a clinic near you, visit MentalHealth.gov.

5. Enlist the help of a credit counselor or financial planner

Sometimes, it helps to get an outside perspective on your debt, or at least talk to someone who can reveal your options. A credit counselor or financial planner can help you take steps toward getting your finances in order or develop a game plan for getting back on track, McClanahan said.

The National Foundation for Credit Counseling is a nonprofit financial counseling organization that provides a variety of free services, including counseling on credit and debt, bankruptcy and student loans. If you’re interested in hiring a financial planner, you could use the National Association of Personal Financial Advisors to find one.

Outside help could help you better weigh the pros and cons of your options and guide you as you work on your debt.

6. Focus on improving your credit score

Take steps to rebuild your credit and improve your credit score, which in turn, could give you access to more credit in the future. For starters, focus on implementing a plan for paying off debt, and work to keep your balances low on credit cards. Keep in mind that improving your credit score requires small, responsible actions over time, so be patient and set long-term objectives. For more tips on how to improve your FICO score, take a look here.

Indeed, accumulating debt can certainly take an emotional toll and negatively impact your overall life satisfaction. However, you can take simple steps to pay down debt and turn your financial situation around. No financial situation is permanent, and with some patience, persistence and implementing of best practices, you can find yourself back on the path to financial recovery. So take a deep breath, keep your emotions at bay and work on tackling your debt in a practical manner.

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