Avoid Payday Loans! Try These Alternatives Instead

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Payday loans are an almost guaranteed way for the poor to get poorer – FAST.

What exactly is a payday loan?

Essentially, payday lending is an easy way for people who are strapped for cash to borrow enough money to tide them over “just until their next paycheck.”

Those who are desperate enough may be enticed by one of the 20,000+ payday lending institutions in the U.S. The idea may initially sound like it could work: you’re out of money, you’ve got bills to pay, you can borrow what you need and pay it back as soon as you next get paid.

The problem with this type of short term lending is that the borrower is often unable to repay the full amount borrowed right away, which immediately causes all kinds of finance charges to start accruing. Unable to make good on their original payday loan, many people take another loan to pay off the first one, and the cycle begins.

The average interest rate charged on a payday loan is somewhere around 400%. Some states have some regulations in place, but many do not. Would you take MasterCard up on a credit card offer that charged 400% interest?

What are the alternatives?

So, instead of creating a gigantic financial mess for yourself, what can you do when you’re short on cash? Here are some responsible ways to get your bills paid until you can get yourself back on track:

  • Credit Union Loan – If you’re a member of a Credit Union, you may be able to take a small loan from them – either a payday advance (at a much more reasonable interest rate of around 12%), or a small traditional loan with interest rates that usually don’t go above 18%. Credit Union loans are a great option for members because they also allow additional time for loan repayment, including installment plans.
  • Ask your employer directly – In certain emergency situations, you may be able to speak directly to your boss about giving you a one-time advance on your paycheck. Since it’s your own money, there will be no one to pay back, and no interest.
  • Small Dollar Bank Loan – Several years ago, the FDIC ran a Small Dollar Loan Pilot Program that allowed banks to grant smaller amount loans while being insured by the FDIC. The Pilot was successful in showing many banks that smaller dollar amount loans can be successful. More banks are now willing to grant smaller loans – ranging from $500 – $2,500.
  • Negotiate with your current lenders – If your main financial struggle is paying your current creditors, or even making your monthly utility payments, you may be able to negotiate lower payments that work for you.
  • Credit counseling – Instead of jumping at the chance for a payday loan that will inevitably end with financial crisis, reach out to a professional who can actually help to get your finances functioning better for the long haul. Your best bet is to look for someone in your state who has a lot of experience and success in assisting clients with money and/or credit problems.  This is likely to be a bankruptcy attorney in New Jersey or the state that you reside in. Hiring a bankruptcy attorney does not mean you have to file for bankruptcy! They have a vast amount of expertise in getting people back on their feet in a variety of ways, and their fees will be much lower than you’d spend on a payday loan.

Choose the alternative(s) above that work for you, but please avoid payday lending at all costs (no pun intended). Payday loans are definitely no laughing matter. Call Veitengruber Law for a FREE assessment of your finances now.

Image Credit: LendingMemo (Flickr)

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