Before Getting a Personal Loan

Some banks have special loans that you can take out personally to deal with your bad debt. Before you begin applying for personal loans, you should:

• Request your credit report (you can get one free copy annually)
• Attempt to negotiate with the credit collector to try to get a lower balance (this must be paid in one lump sum, which can be done with a loan)
• Do a final calculation of what’s owed, so that you know how big of a loan to take out

Benefits of Debt Consolidation

Once this is all done, you will have all the information needed by the bank. If you choose to go with a bank that specializes in debt consolidation, they will negotiate with the credit collectors for you, so that you can owe the lowest amount possible. Besides, the lower the loan you get, the less you have to worry about paying back. The great benefit about getting a personal loan to pay off your debts is the idea of only owing one entity. Now, all you’ll have to worry about is paying one monthly bill – plus, your credit rating will go up because you paid off your debts and are now paying on a personal loan. It’s a win-win-win situation for everyone – the bank, the credit collectors and you.

Downfall of Personal Loans for Debt

Although using a personal loan can be a good way to get rid of debt, you have to still consider the reality of getting turned down. Some experts say that there is a better chance of getting approved for a high interest rate or restricted credit card than a personal loan. But don’t get discouraged because even with the economy, there are still a lot of a personal loans out to people with bad credit. Those who have a low credit score and a non-steady income stream are getting approvals, so there is a glimmer of hope still left for the rest of us.

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Organization

Simply put, a super fund is managed by a trustee and must comply with certain government rules to ensure that your super is managed properly. Super funds are more like a mutual fund, in that they are their own entity. Types of super funds include: corporate funds available to employees of a certain company; industry funds available to those working in a certain sector; public sector funds, for government employees; retail funds run by financial institutions which are open to the public and self-managed superannuation funds, which are run by up to five private trustees.

A retirement savings account, on the other hand, is similar to a fund, but is not its own entity. Rather, it is an account offered by a bank, credit union, life insurance company or a financial institution that accepts contributions towards retirement.

RSA providers must be approved by the Australian Prudential Regulation Authority.  As of October 2009, the following institutions have been approved as RSA providers:

• Bananacoast Community Credit Union Limited
• QANTAS Staff Credit Union Limited
• Hunter United Employees’ Credit Union Ltd
• Queensland Country Credit Union
• Police Association Credit Co-operative Limited
• Savings and Loans Credit Union (SA) Ltd
• Queensland Police Credit Union Limited
• Defence Force Credit Union Limited
• Commonwealth Bank of Australia

RSAs offered by these institutions are sometimes called “superannuation savings accounts” or “super savings accounts.”

Employer Contributions

Employers are required by law to contribute 9% of the earnings to the super of each employee over the age of 18 (or working 30 hours or more) and under the age of 70 who earns more than $450 a month before taxes. Employers can also opt to contribute to an RSA or open an RSA on your behalf.

Individuals can also opt to make voluntary contributions to their super fund or RSA, which are tax deductible up to a certain point.

Retirement Benefits

Both RSAs and supers pay out upon retirement, disability or death and can be paid out as a lump sum or as a pension or annuity.

The amount that is paid out by a super fund is determined either by accumulation (i.e. how much has been paid in plus return on investment minus fees and taxes) or defined benefit (i.e. amount paid in plus a set formula, such as years of service and age).

Retirement savings accounts are “capital guaranteed” meaning that the amount paid out can only be reduced by fees and charges. Like any other savings account, RSAs accumulate interest over time, which is added to the principal. Interest rates vary depending on balance and the market.  Unlike a super fund, which may lose value due to poor investment performance, the principle of your account is not subject to market volatility.

Taxes

Both RSA and super funds have a concessional tax rate of 15% for contributions. Interest from RSAs is also taxable at 15%. However, when receiving a pension or annuity from RSA, you are not required to pay tax on investment income.

Fees

Super funds typically charge management fees up to 3% of the balance, as well as transaction fees and termination fees.  The fee structure for RSA fees vary depending on the provider, but are typically a flat rate based on your balance, with some RSA providers charging no ongoing fees at all.  Additionally, RSA providers are not allowed to charge fees that exceed the interest credited to the account for balances less than $1,000.

Insurance and Other Services

Many super funds also provide insurance and death and disability protection. Likewise, RSA providers sometimes offer optional insurance policies to retirement savings account holders. The fees and coverage for such plans varies depending on the provider, but are often better than life insurance plans purchased independently.

Benefits and Considerations

The fee structure for RSAs is much simpler than those of super funds, and the capital guarantee ensures that you will not lose any money on bad investments. However, most RSAs are extremely conservative in comparison and may fail to beat inflation over the years. You may wish to discuss your options with a financial planner before deciding between an RSA or super fund.

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Why Do People Use Debt Consolidation?

Debt consolidation is typically sold as a service that “makes it easier to manage your debt”. Instead of making six different payments on six different debts to six different lenders, you instead can roll all of your debts into one larger debt. Thus, you only make one payment to one lender.

It is easy to see the organizational benefits to this debt repayment option; instead of trying to manage a variety of payments to different lenders, you only have to keep track of one payment and one lender. The prospect of this entices many individuals to attempt a debt consolidation plan.

Pitfalls to Debt Consolidation

While debt consolidation looks attractive to most individuals, there are many potential pitfalls for this plan. Here are some things to consider before beginning a debt consolidation plan.

1.      Fees- Of course, a debt consolidation company will not work for nothing. The firms will impose “administration” and/or “processing” fees. These fees only add to your existing debt, so examine any extra fees and costs that the company will impose. These are fees that you normally wouldn’t have to pay if you kept your loans unconsolidated, so be sure to factor that in when examining whether or not you should use debt consolidation.

2.      Interest Rate- When consolidating your debts, the debt consolidation firm will also charge you an interest rate just like your other creditors. However, while you will only have to worry about one interest rate instead of multiple ones, this rate may be higher than the effective rate that you pay on the unconsolidated loans. In short, you may be paying even more in interest than is necessary.

3.      Length of Payment Period- While debt consolidation firms often offer to lower the interest rate, they also may lengthen the payment period. This will keep you in debt longer than your original debts would have, and also may incur more in interest payments.

4.      Secured Loans- One potential pitfall to debt consolidation is taking your unsecured loans and turning them into one secured loan. By pledging assets (typically your house) to secure the loans, you are risking your home and other physical assets o your ability to repay the loan. However, your various credit card debts are unsecured, meaning that the creditors will have no claim to your personal assets in the case of bankruptcy.

The Australian Securities & Investments Commission also has some good tips on debt consolidation.

Do Debt Consolidation Companies Help You?

Even if a debt consolidation firm helps you to pay off your debts by condensing them into one single payment, there is still one looming defect of the system: you still haven’t changed the behavior. While hidden fees and extra interest payments are certainly costs you will have to endure with a debt consolidation plan, the most dangerous part of these plans is that they only treat the symptom—not the root of the problem.

Choosing a debt consolidation plan is only one way to try to eliminate your existing debt. Instead of trying to pay down your debt through debt consolidation, you can also choose to employ a proven, systematic way to pay off your debts. By paying off your debts, and learning how to live beneath your means, you can live debt free for the rest of your life.

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With that in mind, you can see why finding the right mortgage is so important. It’s just as important as finding the house of your dreams. You don’t have to live in your mortgage, but you will be paying it off for 15 or 30 years or more. A good mortgage broker can help prospective home buyers find the mortgage that fits their lifestyle.

But how do you find the right mortgage broker?

First, let’s understand what a mortgage broker does. A mortgage broker:

• Pre-qualifies or pre-approves buyers for a loan. This lets buyers know the price range of house they can afford, narrowing the home search to realistic parameters before they begin.
• Offers a variety of mortgage options to meet your needs. Loans aren’t one size fits all, and a mortgage broker helps you sift through the vast array of options to find one that meets your needs.
• Helps you find the best interest rates. A mortgage broker should stay in touch with you throughout the loan application process, keeping an eye on interest rates in order to get you the best rate available. He understands the market trends better than someone outside the industry, so he can advise you to “lock in” your rate or wait to see if interest rates fall.
• Walks you through the loan application process. Mortgage applications can make filing taxes look simple. A mortgage broker will help you every step of the way. He can offer advice on how best to manage your finances in the months before closing on a new home, and lets you know what paperwork and documentation is necessary to complete the application process.
• Offers a “good faith estimate” of closing costs. Your mortgage broker should provide a line-by-line estimate of all costs associated with buying a home.
• Works hand-in-hand with the real estate lawyers, agent and any other necessary parties to bring the deal to closing.

A mortgage broker can save you time, money and hassles by helping you choose the right loan. But just as loans are not one-size-fits-all, neither are mortgage brokers. Before selecting a broker, consider your needs. Are you:

-          A first-time home buyer?

-          A real estate investor?

-          A home owner looking to refinance?

Make sure the mortgage broker you select is accustomed to dealing with customers in need of similar services.

Finding a Mortgage Broker

It’s easiest to find a broker by word-of-mouth; the real estate agent may be able to recommend a good broker. Otherwise, talk to family and friends who have recently purchased a home.

Most mortgage brokers get paid by the lenders; the broker should disclose all commissions or fees, which should not equal more than 2 percent of the total loan value.

Questions to Ask

When you narrow down your choices of brokers, consider the following questions:

• Does the mortgage broker answer all your questions and make you feel comfortable about the process?
• Is he readily available by phone or e-mail to address any concerns or questions? Brokers need not be “on call” 24-7, but you should be able to expect to hear from them within 24 hours.
• Does the broker work with a broad range of lenders, making it more likely he’ll be able to find the best loan for you?
• Is the broker willing to provide in-depth written information about the different loans that fit your needs?
• Do you feel as if the mortgage broker has your best interests in mind? A broker should not pressure you to select one mortgage product over another without disclosing his motivations and explaining the reasons clearly.

If you can answer “yes” to all the questions above — and that broker has a loan product that fits your needs – congratulations! You’ve found the right mortgage broker to lead you on your journey toward home ownership. If not, keep looking – the wrong mortgage broker is far worse than no mortgage broker at all!

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First off, you should consider whether or not an SMSF is suitable for you. For example, if you have under $200,000 to put into it, you might well find that by the time you’ve paid establishment costs and accounted for the $10,000-$15,000 a year you’re likely to pay for the pleasure of running the fund, the whole venture could end up being a touch uneconomical; you’ll also need both the time and ability to run the fund – two things that not everyone has.

OK, I’m in. What’s next?

It boils down to four key steps, all of which we will look at in greater detail:

• Establishing the trust
• Becoming a regulated fund, obtaining a tax file number and an Australian business number
• Developing an investment strategy
• Opening a bank account

Establishing the trust

This aspect of the trust setup process is probably the least “DIY” of them all, as you will need to employ the services of an accountant or solicitor in order to set up a trust deed. The trust deed is a document detailing things such names of the trustees, the position they have within the trust, contribution conditions and benefit payments; make sure this is signed, dated, and properly executed. All members of the fund need to be trustees, and anyone over the age of eighteen can be a trustee so long as they are not undischarged bankrupts or have been proven guilty of a crime involving dishonesty.

Becoming a regulated fund, obtaining a tax file number and an Australian business number

You and your fellow trustees are responsible for the actions of the fund, including assigning an auditor, completing tax returns and lodging contribution statements. You will also need need to be regulated by the Superannuation Industry) Supervision Act (Or SISA), as doing this will grant you concessional tax treatment.

As Trustees, you and your fellow fund members have 60 days to notify the tax office of your SISA regulation. To do this, either log on to www.abr.gov.au or contact the Small Business information line on 13 28 66. You will then be issued with a tax file number and an Australian business number, quite nicely completing step number two, although be aware that once you have decided to be regulated, the only way out of this is to close the fund.

Developing an investment strategy

Again, this isn’t a particularly DIY process, as in order to do this properly (and you really should be doing this properly), you will need the help of a licensed financial advisor – There’s a lot to think about, including risk, return, liquidity, asset location, and a whole lot more. However, this is one of the more straightforward steps, if not one of the more costly.

Opening a Bank Account

We’re on the home stretch now; just the final step left. You will now need to create a bank account in the in the name of the fund – the reason for this is that you will need to keep your superannuation funds separate from your personal assets.

To Finish:

If you’ve read through this article and you’re still thinking “Yeah, sounds good to me”, then just remember: Make sure you are certain you and your fellow trustees will be able to manage this fund in the correct way – There are harsh penalties for going against the legislation set, for example, if the fund borrows money to invest, you could find yourself in quite severe trouble. However, so long as you stay on the right side of SISA, you could find yourself with quite a comfortable nestegg to retire on once the day comes.

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Debt Consolidation Benefits

• One monthly payment instead of many reduces the complexity of your financial life as you only have to track and pay one account. This lessens the chances of accidentally paying a bill late because you have to keep up with so many different accounts.
• A lower interest rate means you will save money in the long run as you will be paying less interest on your debt and your monthly payments should be reduced.
• A smaller monthly payment means more money in your pocket each month. If you are on a tight budget or struggling to keep up, this benefit alone makes debt consolidation appear worth it.

Debt Consolidation Drawbacks

• More disposable income can lull you into a false sense of security. With the debt consolidation loan lowering your payments to the point that you actually have a little money to spend you can begin to feel as though you aren’t in bad financial shape.
• Empty credit accounts that were paid off with the proceeds from the consolidation loan can prove to be to strong to resist for many. The whole I’ll just charge this new iPhone because I have to have it and I’ll pay it off when the bill comes is how you likely got into trouble in the first place.

Is It Really Just Delaying the Inevitable?

In many cases it is. Even though the benefits outnumber the drawbacks, and the two drawbacks at first seem to be benefits, for many people in financial trouble the consolidation loan doesn’t treat the core problem.

If you are in dire straits, you most likely got there as a result of a lot of bad financial decisions made over time. Giving you a lower debt payment and empty credit accounts  only treats the symptoms and not the root cause, which is your lack of ability to handle your finances that got you in a financial mess in the first place.

People who consolidate their debt often wind up with the consolidation loan and credit cards that are maxed out again, effectively doubling what they owed before the consolidation. In fact, most money management courses will tell you to stay away from consolidation loans until you have spent a couple of years adhering to a strict financial regimen to prove that you are able to handle your finances before applying for a consolidation loan.

If you find yourself in debt due to illness or job loss, then debt consolidation may make sense for you if you have sound money management skills. The loan may make the difference between going under and making a full financial recovery.

Only you know which camp you fall in, so make a smart decision because your financial future hangs in the balance.

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Which piece of advice is right for you? You may want to reduce your credit card debt payments but you don’t want to be paying it off for 30 years. You may be thinking about a loan to consolidate your credit card debts, but is this really the right thing for you?

Before you take professional credit card debt advice, you should be aware of your options…

DIY Credit Card Debt Advice

If you feel as though you are still in control of your credit card debt, then the DIY option may be for you. There are a number of ways that you can tackle your credit card debt without getting professional credit card debt advice, including:

Pay more than the minimum amount required – This may seem like you are not doing much to tackle your credit card debt, but in reality you are. No matter how little extra you can afford to pay, it is important that you make these additional payments. This is a simple way to keep your interest charges as low as possible, as interest added to credit card debt is one of the reasons it feels so impossible to repay.

Create a budget – Creating a budget is essential to get your finances in order. You need to track how much you expect from income and how much your outgoings are, be sure to include any standing orders, direct debits and secured debt repayments.

Scrap that budget. Start again – It is likely that your first attempt at budgeting may not be the most successful, maybe you didn’t realise how much you spend on petrol or the true cost of your morning latte.

But please do not give up, your budget can work and you can repay those credit card debts to become debt free! After you have learnt from your mistakes, it is time to rework the budget to suit you. Yes, it needs to be strict, but it also needs to be livable. Don’t forget to save some money for contingencies, such as birthdays or unexpected costs.

Professional Credit Card Debt Advice

Sometimes the only way to deal with your credit card debt is to seek professional credit card debt advice. If you have multiple debts, including store cards, credit cards, loans and overdrafts, it can sometimes be worrying about how to deal with your debts in the most efficient manner.

Be warned – There are a number of companies out there who do not have your best interests at heart, and it is essential to shop around to find an ethical debt solutions company who can offer the full range of financial products so you are not pressured into a debt solution which is not right for you.

Debt solutions come in many shapes and sizes, including:

Debt Management Plans – A Debt Management Plan means that you can make a single reduced payment to cover all of your unsecured debts. This can often be a debt solution if you have low-ish levels of debt, typically under $15,000.

This type of debt management solution means that you all of your unsecured debt repayments are covered through this single payment, which should enable you to budget more efficiently. The downside is that it will take you longer to repay your debts and you may be charged a management free from a debt management company. However, it will make your credit card debts affordable and the company is likely to deal with all contact from your unsecured creditors, leaving you with peace of mind.

Bankruptcy – Bankruptcy should never be seen as a ‘quick fix’ to credit card debts, which is why it is important that you seek professional credit card debt advice from an ethical company. They should go through your finances and work out if there is a way for you to avoid bankruptcy and still repay your credit card debts.

For those who seek bankruptcy advice and still feel that as though it is the right solution to clearing credit card debt, you should be aware of the disadvantages. You will lose control of your finances, will lose your home and find it very difficult to get accepted for credit in the future, but for some bankruptcy is the only debt solution available.

These are not the only solutions to credit card debt. But hopefully by reaching the end of this article, you should have a better understanding of whether you can tackle your debts yourself or whether you would be better seeking professional credit card debt advice.

This blog is a great starting point to offer you advice on both of these measures. Arm yourself with all the information that you can before seeking professional debt advice – it is important you know what you want to get from the debt solution, and then you can plan a future free from credit card debt.

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Elements of a Product Disclosure Statement

Typically, the PDS will list the following information about the product:

• Product Features –  this will list all the details about the particulars of the financial product being purchased.
• Fees – this will outline how much the buyer will be expected to pay for the product, and all additional fees that may apply.
• Benefit/Risk statement – this will outline the overall benefits and risks of investing as it relates to the particular product being purchased.
• Commissions – any money that will paid to the broker out of the buyers returns.
• Complaint Procedures – what the buyer needs to do if there is a problem with the product or how it is administrated.
• Any other pertinent information the buyer will need to make an informed decision.

When a buyer receives a PDS, it’s important to read it carefully to make sure he or she fully understands what is being purchased.  Product Disclosure Statements are not typically used for investments that are traded on the open market, so are therefore not required to be registered with the Australian Securities and Investments Commission (ASIC.)  If a buyers product includes a managed investment which is publically traded, a copy of the PDS will be lodged with the ASIC, and will be searchable on the ASIC website.

Products Which Require a Product Disclosure Statement

In Australia, the following products require the buyer to receive a PDS before the transaction is completed:

• Managed investments, like mutual funds or investment packages.
• Superannuation products:  These are retirement accounts buyers may contribute a certain amount of money to per year.  This money is then invested into a managed fund of variable risk, depending on the buyer’s unique needs and qualifications.  Superannuation products usually include an employer contribution, and may be part of an employment benefit package.  A PDS may look slightly different for a superannuation product than for other financial products, and may include additional details about benefits, premiums and objectives.
• Retirement accounts:  Similar to superannuation products, a retirement account may be an investment fund or savings account created to help support a buyer through retirement.
• Deposit products, including low-risk, short-term, guaranteed investments.
• Derivatives: Derivatives are financial contracts based on the value or price of another item, and are used to lower the risk of losing money when the value of that item fluctuates.   Derivatives may be based upon an asset, like a residential mortgage, commodities, stocks, loans and bonds; or an index, like stock market indices, exchange rates, interest rates or the consumer price index.

Read the fine print!

The Product Disclosure Statement is the proverbial fine print. While it might seem like a hassle to read through it thoroughly, just ‘skimming’ it is most certainly not recommended. Sit down and really study it before you commit to anything, and if you don’t understand a part of it, ask!

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Debt consolidation can be helpful to assist in sorting out your debts. It can be too easy to make a late payment in a given year if you are trying to keep track of when each of your various six payments are due each month, and even one late payment can have negative side effects on that specific loan and your overall credit record. Of course, there is a lot more to debt consolidation than only keeping track of one payment.

What To Watch Out For

Before you consolidate your loan, it is important to know that the debt consolidation firms are out there to make a profit. You cannot just go and consolidate your loan without an extra cost. Some of the things that debt consolidation firms use to make their profit includes:

• Increasing The Payment Period: While the consolidation may offer you a smaller monthly payment than what you currently pay, they normally can only do this by extending your payment period. This means that you will stay in debt longer, and pay more in interest over the long term. A smaller payment may sound like a great benefit, but be sure you examine how much longer you would be in debt, and how much more you would be paying in interest.
• Increasing The Interest Rate: Consolidation firms sometimes will charge a interest rate higher than the weighted average rate of your other loans. However, they often disguise this by combining it with the first strategy. This way, the consolidation firm can charge you a higher interest rate for a longer period of time, and still offer “one low monthly payment.”
• Miscellaneous Fees: In order to process your loan application and get everything arranged, you will most likely encounter “application fees” and “administration fees”. Each one may not seem like much money at the time, but they can quickly increase your bill, making the consolidation plan much less attractive.

The FIDO website also has some great tips on what to watch out for when consolidating your debts.

Is It Right For Me?

The benefits to debt consolidation will vary depending on your personal situation. If you are relatively well off financially and can make your current payments, then debt consolidation probably isn’t for you. Conversely, if you are on the edge of financial ruin, a debt consolidation loan may be the only way to keep yourself out of bankruptcy. Before making the decision yourself, take some time to meet with a financial counsellor to discuss your needs and financial situation.

By taking time to meet with a local financial counsellor and exploring the added costs of debt consolidation (live longer in debt, pay more in interest), you can determine whether or not debt consolidation is right for you.

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This is business

No matter where you get your loan, the lender you use is only lending you the money to make a buck (or many) off of you. While most decent businesses will be honest about the costs (This is a legal requirement), it is not in their interests to tell you where to go to save a few hundred dollars.

Considering this, you should definitely shop around when looking for a personal loan company. While most personal loans do not have a payback term as long as a mortgage, you do not want to be a month into a five-year loan, only to find out the company around the corner is offering the same deal at a better rate.

Is the Company Reputable?

You do not want to deal with a “cowboy” operation that makes huge promises, gives you the money then starts charging all sorts of arrangement and admin costs that have been written into the fine print. Ask yourself:

- How long have they been operating? Yes, just because a company is new doesn’t mean it isn’t reputable (and vice versa), but it’s always worth checking into the company before you take the plunge.

- Do you know anyone that can recommend this company? If someone you know used the personal loan company and had a good experience, chances are you will do well with them too. Many companies are quick to offer testimonials from happy customers, but these will be edited to show the company in the best light possible. You may consider speaking to someone like ASIC (http://www.asic.gov.au/asic/asic.nsf) regarding the company if you have any doubts.

Does the personal loan company do secured or unsecured loans?

- A secured loan is called ‘secured’ as you use collateral that you pledge to give the personal finance company if you don’t pay back the loan. If the money lent is for a mortgage, the collateral is your home. With a car loan, you risk losing your car. With a personal loan, you might pledge something already mentioned, or perhaps another expensive item – Jewellry perhaps.

- An unsecured loan is similar to credit card debt, as there is no collateral to cover the personal finance company’s investment if you do not pay the sum back. This does not mean you will get away with missed payments however; the company will often get you back with late fees and so forth – Plus it can damage your credit rating.

How will your credit standing affect the loan company’s desire to do business with you?

If you have a bad credit rating, or even no credit history at all, some companies will not even humour you. Other companies, however, will be happy to take you on, albeit at a higher than usual interest rate.

-Another possibility is that the company will ask you to have a cosigner on the loan – If you’re young and have poor or non-existent credit history this is likely. What this means is that the company aren’t happy with just your assurance that the loan will be repaid (Which is essentially what your signature is on a loan application). The cosigner will also need to sign the loan documents, ensuring the company that they will pay back the loan if you default on it. Many people will not (or can not) cosign a loan however, as it is a massive financial responsibilty should you default on the loan.

Unfortunately, there are no absolutes when dealing with life, and that includes getting a personal loan. However, if you keep these recommendations in mind, ask any questions you have (no matter how dumb they may seem) and verify every step you take, then getting the money you need should be relatively painless.

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