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Payday Loan Alternatives

April 19, 2009 by PlasticEconomy.com · Leave a Comment 

If you have an urgent situation and are in need of cash, there may seem like there is no other way than to take out a payday loan, especially if you have bad credit. However you should investigate other methods of obtaining the cash you need to prevent further financial problems caused by predatory payday lenders.

If the problem is money owed to a creditor or creditors, call them and ask for a payment extension. The vast majority of utility providers, cable television companies, Internet providers and telephone companies will give you extra time to pay if you need it. Even your credit cards may be able to be extended until you can pay.

Along with requesting extensions for bills that are due, you can raise money in a variety of different ways including working overtime if at all possible. Many employers do offer overtime to their employees so be sure to ask.

There are also a variety of jobs on the side you can take on. You may want to work a few hours each night somewhere other than your full-time job. It is also possible to turn your hobbies into cash. For example if you are a painter, knitter, woodworker or gardener you could take your hobby and make it a part-time business. Maybe you don’t have a hobby that can make quick cash, or the ability to work overtime or take on a second job.

In that case, you may want to ask your employer for the funds.  Some employers do offer pay advances to their employees, then take out a certain amount from each check to cover the advance. Speak to Human Resources if this is something you are interested in.

As a last-ditch effort you could borrow the money you need from friends or family, assuming a bank or credit union will not grant you a personal loan because of your bad credit. You may also want to consider pawning or selling some of your valuable items. Fine jewelry, antiques and electronics are items that can be sold for quick money.

It’s recommended you explore all your available options before turning to a payday lender for a loan with an extremely high interest rate.


Risks of Payday Loans

March 7, 2009 by Shawn · Leave a Comment 

If you think a payday loan (also commonly referred to as a cash advance loan) is a good way to take care of an urgent financial situation you should think twice. Some people who obtain this type of loan end up paying a great deal more than what they borrowed and have a difficult time paying off the loan.

One reason for this is the exorbitant amount of interest charged, which can range between 300 to 1000 percent. This is about ten times the interest a bank or credit union would charge for a personal loan.

With such high fees you may wonder why anyone would choose a payday loan. These loans are geared towards people with bad credit or no credit who cannot obtain the money they need elsewhere. It can be very alluring, especially to young consumers who need fast cash. Typically you can walk into a cash advance center during business hours and walk out with the money you need in about thirty minutes or so. These companies do not check your credit, but they may ask you for income verification and references.

Let’s say you borrow $300 from a payday lender. They may advance you the $300 for a period of up to 14 days with a fee of $56 (fees vary from lender to lender.) However, if you cannot pay your loan in full within that time period, your payments will increase each month because the interest balloons up a high amount in a short time.

Many borrowers who are in dire financial straits are forced to keep extending the loan and end up paying several times the amount they borrowed in fees. It’s a vicious cycle that can leave you in worse shape financially than you were when you obtained the loan.

The Federal Trade Commission (FTC) recommends consumers avoid cash advances and payday loans. Alternatives to these high-interest loans include applying for a loan with your bank or credit union, borrowing from friends or family, taking a cash advance off your credit card if you have one, asking for an advance in pay from your boss and even asking your creditors for extensions on bills you are unable to pay on time.

Establishing a savings account for financial emergencies is also a good idea because it can prevent the need for a payday loan in the first place.


Establishing an Emergency Fund

March 7, 2009 by Shawn · Leave a Comment 

An emergency savings account is a safety net that can protect you when unexpected expenses arise. For example, your car may break down and need costly repairs. Or you may lose your job and have a period of unemployment before finding another.  An emergency fund is preferable to using credit for these types of financial issues because credit cards and loans create debt and can make your financial problems even worse.

The rule of thumb when it comes to establishing an emergency account is to aim for three to twelve months of living expenses. Of course, the more money you’ve got in your emergency account, the better. For most people building their emergency fund to where they want it takes awhile. The first step is to decide on a savings goal and figure out how much to put towards that goal each week or month. This can be achieved by examining your budget and evaluating the money available for savings.

If there isn’t any money available, you will need to cut expenses, increase income or both. Everyone should have a solid budget plan implemented, if you don’t already have one establish it now.

Your emergency savings should be kept in an account separate from your normal checking and savings accounts. This will make you less likely to take money out of the account for non-emergencies. If you think it will be difficult for you to put money in the fund regularly consider having it directly deposited from your paycheck. That way the money will be placed in the savings account before you even see it.

By depositing to your fund regularly you will eventually meet the goal you’ve set for yourself. Once you meet your original goal, consider raising it and saving even more.

As mentioned previously, an emergency fund is for just that — emergencies. You should only dip into the account when you absolutely must. This might include job loss, medical expenses your insurance policy doesn’t cover, a pending repossession of your vehicle, foreclosure on your home…you get the idea.

You should not use the money in your emergency savings account for merchandise or services that are not absolutely urgent and necessary. You may want a new designer handbag or car stereo system, for example, but the last thing you want to do is buy it with your emergency fund money.


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