In a recent post, I gave an overview of refund anticipation loans, which are loans that people take out from tax preparation services in order to receive their tax refunds sooner. I wanted to add some data to support my claims that these loans, like payday loans, are expensive and should be avoided.

The data cited below comes from the early release of the 2008 report on refund anticipation loans compiled by the National Consumer Law Center and the Consumer Federation of America. These consumer advocacy groups prepare this report, and others, on a yearly basis. A full copy of the report can be downloaded here.

There are typically three parts to the fees charged for refund anticipation loans: a refund account fee, a bank fee, and a processing fee. The refund account fee is used to create a temporary bank account that the borrower will use when repaying the loan. The bank fee is charged by the bank loaning the money, and the processing fee is charged by the tax preparer itself. Different companies charge different amounts for these fees, so overall costs do vary.

The report showed the combined bank and refund account fees to range between about $58 and $110 for a refund anticipation loan of $2,600. That loan amount was chosen because it is the average refund for American taxpayers. Processing fees, when disclosed, varied between nothing and $40. Those wanting their refund anticipation loan the same day could expect an additional $25 to $85 in fees. Other fees, such as a $20 surcharge for a paper check versus direct deposit, were not uncommon.

Based on these fees, the report concluded that the effective APRs of refund anticipation loans range from about 80% to nearly 1,200%. Same-day loan fees pushed the effective APR over 1,400% in some cases.

One final note on refund anticipation loans is that they must be repaid in full, regardless of the amount of your actual income tax refund. So if your return is prepared inaccurately, or if you receive a smaller refund than expected (or no refund at all), you are still responsible for repaying the loan in full. If you’re desperate enough to take out a refund anticipation loan, then you will likely have a difficult time repaying the loan without your expected refund. Adding this risk to the unbelievably high interest rates and fees, you can see why we so strongly advise you to avoid using a refund anticipation loan.

Again, many consumers considering a refund anticipation loan would be much better served with a person-to-person loan from Lending Club. It’s easy to beat the interest rates offered by refund anticipation loans, but borrowers are turning to Lending Club because they can get even better rates than those of traditional funding sources like banks and credit cards.

A common practice at tax time is for tax preparation services to offer refund anticipation loans to their customers. While the costs of such loans are coming down and fewer people are using them, they nonetheless should be avoided.

It sounds like a great idea: walk in with your tax information, and walk out with a check. That’s how simply the same-day refund anticipation loan process is usually marketed. Other alternatives, like receiving a check within a few business days, are also common. Even if the process is that easy, it doesn’t mean that you should take advantage of it. As with any loan, there are costs involved, and taking a refund anticipation loan will cost you money in the form of fees. Even though the fees may not seem like a lot of money, the short-term nature of the loan makes them unacceptably high. Such loans are very similar to payday loans. Many consumers, who would never consider a payday loan, are using refund anticipation loans without realizing how expensive they can be.

The good news is that there has been some progress in reducing the number of refund anticipation loans. The National Consumer Law Center reports that for tax year 2005, the number of refund anticipation loans was estimated at 9 million, down from 12 million for the previous year. One of the main reasons for this decline, in addition to consumer education, is that taxpayers who E-file and elect direct deposit get their refunds from the IRS in as little as a week, with most arriving within two weeks. There’s seldom a need so pressing that you can’t wait a week or two to avoid the costs associated with a refund anticipation loan.

Lower income workers are more likely to paper file and less likely to have a bank account. That means that those who probably need their refund the most will have to wait the longest to get it. As a result, they may be the most enticed to take out a refund anticipation loan. Everyone who considers a refund anticipation loan would likely be better served with a more affordable alternative, such as a low interest rate person-to-person loan from Lending Club.

If you are in desperate need of your tax refund and don’t want to take out any type of loan, file as early as possible, file your return electronically, and use direct deposit. For future planning, consider adjusting your withholdings so that you’ll get your money throughout the year instead of as a lump sum payout in the form of a tax refund at the end of the year.

First off....you have a PH.D in genetics?! That's quite an accomplishment. Is there any crossover between DNA and personal finance? We're not hard wired to be in debt, are we?

Well, I don't think we're genetically predisposed to be in debt. I didn't research that though; my dissertation involved plants. I think that there might be some genetic predisposition to be attracted to pretty things or something like that, but I don't think we're born doomed to a life of debt by the curse of our DNA. Most things have an environmental focus as well, and I think the culture of debt we live in helps people see debt as normal and accept it for themselves. I know it did for me.

Your blog title, "I've paid for this twice already" is great. How did you come up with the title?

Honestly, I'm not quite sure. I was thinking about starting a blog, and I was thinking about how, for me, one of the worst things about debt is that interest just keeps making it go up and up and up, and realized how I'd probably paid for things I had loans/credit for twice over already. So the title just kind of occurred to me. I'm glad you like it.

I know from my own experience how helpful blogging has been to my own financial situation, attitudes, and actions. How has being a personal finance blogger changed you?

I think it has done a lot for me - and I can think of two main ways. One is the accountability - I actually started blogging to have random people hold me accountable and keep me on track, so I expected that. But the other is realizing how little I know about finances - and how much there is out there to learn that is actually *accessible* to me. I really enjoy the community interaction and learning from each other.

How do you budget each month?

I use a spreadsheet form of PearBudget (they've since upgraded to an online version but I am still using the old spreadsheet). But the process is this - I look at our projected income (my spouse's is pretty steady, mine is variable but I estimate) and I assign it all to categories. Then, as I spend money, I track it on that same spreadsheet. As extra money comes in, I assign it to the snowflaking category. As I spend too much in one category, I adjust others to compensate. I am flexible about it, but also, having the budget written out grounds me in reality. I know what we have and what we can spend and don't just guess.

You've gotten pretty extreme with cost cutting measures. What items were the easiest to cut out of your pre-budgeting lifestyle? The most difficult?

Well, we were living pretty bare bones already, just because we mismanaged our money generally in small ways and always seemed broke. For me - eating out was easy to cut. We only went out once or twice a month anyway. Ask my spouse though, and that was probably the worst for him. The hardest to cut is buying stuff for my kids. I love shopping for clothes and small items for them, and well, now I really limit that to what they truly need. Due to the generosity of friends, my daughter won't need clothes until she is probably 5. I am VERY grateful and she has beautiful stuff, but a little part of me wants to go shopping for her anyway.

Do you do any investing, or does any extra income go solely to debt reduction?

Other than the contribution to my spouse's 401K, I don't currently do any investing. Once we are out of debt I intend to start contributing again to my IRA as well as increasing my spouse's 401K percentage. I do save a very small amount each month for my kids’ college funds but since that is still in savings accounts at the moment, I don't know if I would call that investing.

What is snowflaking?

Snowflaking is an extension of the Dave Ramsey concept of the debt snowball, but on a small scale. Once you've established your budget, and what you pay each month to reduce your debts, basically snowflaking is earning small extra amounts or saving small amounts from making cost-cutting choices, and then DIRECTLY and immediately applying that saved/earned money to debt reduction. Those little extra payments really really add up!

If you don't mind me asking, what is your credit score like? Have you ever thought about trying to pay off your credit cards with a personal loan. From say, I don't know...Lending Club?

Honestly, my credit score is pretty awesome. I'm like a creditor's dream - I pay my bills always on time, my available credit is high compared to my actual credit card debt, our debt to income ratio isn't actually too bad... creditors love me. I don't know my actual score right this moment, but when we were buying our house last year you get a copy of your credit report at closing, and my score ranged from the high 700's to the low 800's depending on which bureau you were asking.

I am almost completely done with credit card debt, so I haven't considered doing anything with that since what is left is at 0% and will be gone before the 0% is done. My student loans are another story, but honestly, I get a lot of really really low interest loan offers in the mail all the time. I do, however, think peer to peer lending is a great concept and I have been considering getting into it on the lending end in a few years when I am debt-free.

If you could only share one tip with our readers, what would it be?

It is never a good time to start - so just start now already. Part of my "debt reduction" problem was there was always something else on the horizon to focus on and debt reduction seemed like it could wait until we got through this thing or that thing. Well, the debt just kept on hanging around, and eventually I realized - the perfect time was never, so I might as well just take an imperfect time. Hmm, I think I just came up with an idea for a post...

In many of my posts, I have discussed the value of a good library. While that value still holds true, there is a library alternative that likely offers even more.

This new “library” I’m talking about is your nearest Barnes and Noble store. Other stores which follow a similar business model, like Borders, work equally well. These stores offer everything that you want in a library plus so much more. For starters, they have a large inventory and many copies of newer titles. While their selection of older books cannot compare with a good library, those interested in personal finance are usually looking for new books with new ideas. The classics that have stood the test of time are likely still available at these book stores as well.

There are numerous fringe benefits to using a bookstore as your library. In addition to the comfortable chairs, you can talk, eat and drink, all of which are taboo at a library. When I’m interested in a new book, I like to go to the store, get a coffee and read a chapter or two at a time. Then I return the book to its shelf until my next visit. Even in cases where I have trouble putting the book down, I try to stick to this routine rather than purchase the book. Of the many, many personal finance, business, and investing books I’ve read over the years, few are worth reading multiple times and thus don’t warrant a purchase. While having to read the book in the store can be seen as a negative, it's also a nice little escape from your hectic life.

I used to feel bad about using a store for this purpose. Then, my local Barnes and Noble set up a new reading area for customers. It is an entire section of the store filled with the chairs and sofas that used to be only randomly placed throughout the store. Speaking to an employee about it, she said that the company encourages people to read in their store because it keeps them in the store as long as possible. This leads to more purchases. I’m sure they’d also rather have you preview a few books and then buy the one you want, rather than buy many books and return those you decide against.

Finding value and an improved way of doing things in your everyday life is a rarity. Just like lending and borrowing money became easier and more beneficial with the advent of person-to-person loans from Lending Club, using a local bookstore as your personal library is an improvement over alternatives and one that I strongly suggest you consider.

Do you own every investing and finance book under the sun? Are you a personal finance book addict?

Here are 7 reasons you need to start reading blogs and quit buying those personal finance books…

1. No Cost

New personal finance and investing books can run you up to $20 a book, or even more! If you’re not careful, you could go into debt just keeping up with all of the books out there.

Cost of reading a good personal finance blog? Free. No refinancing required!

2. Updated Financial Information

Blogs can update old posts and information in real time. Book publishers must wait to print 2nd editions; even then, you'd have to purchase the book again to stay current.

With new finance tools coming out seemingly every month (see geezeo, mint, wesabe), books just can't compete with blogs in terms of their updated finance news and tips.

3. More Creative

The blog medium allows more creativity for the author. Bloggers can post pictures, interactive widgets, revealing polls and other resources. Best of all? Comments.

Unless you pass your books along and have your friends write in the margins (as close to a comment system as you could get), books don't create conversations and invite feedback like a good blog post does.

4. Community

Good blogs link to other good blogs. Books reference other books, but you can't access the reference instantly.

Blogs also give you a quick and direct way to talk to the author. Leave a comment on a post you have a question about, and you’ll likely get an answer within a day, sometimes hours!

5. Prizes

Finance bloggers love to give away stuff. Sometimes even books!

Just by commenting on certain posts, you can often win books, gadgets, or even a giant beanbag chair. When is the last time you won something by reading a book? (Did Free Prize Inside really have a free prize inside? No!)

6. Book Summaries

Many blogs have fantastic summaries of finance books. So, why read the fluff when you can get the meat for free? Here are two examples:

Finance Book Summaries @ The Simple Dollar (book reviews every Sunday)
Book Reviews @ Get Rich Slowly (occasional book reviews)

7. Expert, Applicable Financial Advice

Financial bloggers range from business executives and CPAs to stay-at-home moms and college students. All bring unique perspectives to personal finance – e.g., borrowing money, investing money, budgeting, refinancing – that can help you improve your own financial situation.

So, are you convinced yet?

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Also, check out our list of popular finance blogs.

What do you think? Do you get personal finance advice from blogs?