Smart Alternatives to Payday Loans
The path of least resistance is usually a dead-end street.
In no circumstance is this truer than that surrounding payday loans. While they might appear to be rather benign at first glance, they can add up to big money rather quickly. What’s more, they are aimed at people who really don’t have big money. Factoring out the total interest rate often reveals these loans to harbor annual percentage rates well into triple figures.With this in mind, consider these smart alternatives to payday loans.
How Payday Loans Work
Let’s say you find yourself short of cash to cover an obligation one month. To make up for it, you go to a payday lender who advances you the cash in exchange for access to your checking account, or a postdated check for the amount borrowed—plus the interest, which can be as much as $30 for every $100 borrowed. So, you borrow $100 to handle the obligation, agree to pay back $130 and the following pay period your budget is short $130. Left unchecked, this can become a cascading situation in which your entire paycheck will eventually be going straight to the lender.
- Ask for a Payroll Advance: Rather than going to a payday lender, get an advance on your pay from your employer. These can usually be made free of interest, as you’re not asking for a loan, but rather an advance payment of monies due to you. Alternatively, you can ask for some overtime to make some additional cash. This strategy has the advantage of circumventing a shortfall in your next budget cycle.
- Hold a Yard Sale: Selling off unused items is a good way to convert clutter into cash. This has a couple of benefits; it helps you clean out your closets, garage and storage areas (especially if you’re paying for a storage space) and it could generate the cash you need to tide you over. If you don’t have a yard, you can place items for sale on sites like Craigslist and eBay.
- Talk to Your Creditors: Often, when debtors learn you’re having financial difficulties, they are willing to work with you to make repaying them easier. This can take the form of reduced interest rates, fee waivers or other concessions. If you’ve tried this and you’re not getting any traction, consider working with a company like Freedom Debt Relief to help you resolve your debts for less than you currently owe.
- Small Dollar Loans: Established by the FDIC to help consumers avoid taking payday loans, small dollar loans are administered by regular banks and insured by the Federal government. Ranging from $300 to $5,000, they feature two-digit interest rates, compared to the three-digit rates charged by payday lenders.
- Join a Local Credit Union: A lot of credit unions also offer short term loans at rates far more favorable than those required by payday lenders. Further, when you’re a member in good standing, your credit rating might not come into play.
- Establish an Emergency Fund: Yes, we realize it might be a bit late to do this now but having some emergency cash put away can keep you away from predatory lenders altogether. In most cases, cutting back on some “wants” will help you accrue the cash to cover unexpected “needs” when they arise.
All of these ideas are more favorable than relying on payday loans. Sure, those loans are an easy way to go, but these smart alternatives will leave you in much better shape in the long run.