Payday Loans Create Financial Turmoil
It's a familiar scenario: payday is a week away, the rent is due, and there's a zero balance in your checking account.
Everywhere you turn, ads run for payday loans - on television, on the radio, or even at your local supermarket.
These short-term loan offers made by the finance companies may seem tempting, but be careful, because they come at a high price and have even forced some people to file for bankruptcy.
Most of these companies make their money by charging exorbitant interest rates, or charge fees based on the amount you borrow.
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So if you know that you're running low on cash and your next payday seems far away, consider all of your other options before turning to a payday loan.
Alternatives to Payday Lenders
Numerous, less expensive options are available as an alternative to taking out a payday loan.
Consider opening a credit card to use for essential purchases when money is running low.
Often, you can find a credit card that offers a low annual percentage rate (or APR). Sometimes you can get a cash advance on your credit cards.
The APR may be higher than what it would be for purchases on your account, but it may also be a lot less than what you would pay for a payday loan.
If you'd rather avoid a credit card, see if you can get a small loan from a bank or from a credit union, or talk to your employer about getting an advance on your check.
Talk to your creditors and explain your financial situation to them. They may be willing to accept a smaller payment, or may defer payment for awhile. Make sure that you ask how much it will cost you take advantage of the deferment.
Working with Lenders
If you feel like you must use a payday loan, find out everything you can before you agree to the loan.
Under the Truth in Lending Act, companies are required to disclose the terms of the loan.
Usually, companies charge a percentage of the amount you would like to borrow, or charge a fee when you borrow more than certain threshold amounts i.e. $25 for every $100 borrowed.. Also, make sure you know about any fees that you will incur if you pay the money back late, or if you decide to extend the terms of your loan.
Finally, if you find yourself coming up short before payday on a regular basis, ask yourself why?.
Sometimes the issue isn't how you will get money; it's why you need it at all.
Consider creating a budget for yourself to help you control your spending, or talk to a debt counselor or bankruptcy attorney to help you get your finances in check.
