Best Alternatives to a Payday Loan
There are thousands of people who find themselves in debt currently that started out with a simple payday loan so you are not alone if this describes your situation. Like others, you most likely felt that the loan fees were a small expense to pay for the convenience of cash when you really needed it. You thought you would be able to pay the loan back on time without any problems but then there were other financial demands that got in the way. Every year, Americans spend an average of $500 in interest and fees and fall into a five month endless cycle of debt.
Often, people find themselves in a payday loan spiral of deepening debt because they take out a second loan to pay off the first and then another to pay off that second loan. This can become a vicious cycle of ever deepening debt and the burden grows with each new loan. You can put an end to this vicious circle, however, by assessing your financial situation and making different choices.
When you need to borrow money, you need to consider all of the alternatives instead of automatically taking a payday cash loan. Compare all the offers that are available to you from both online and offline lenders. This can and should still include payday cash loan offers and other short term loan products but not to the exclusion of other, less costly options. You will want to search to find the lowest annual percentage rate (APR) that you can find in your current credit situation.
One option that is often simpler in some ways is getting a small loan from a friend or family member. There will not be any interest, usually, on this type of loan but you must make absolutely sure you can pay it back when you say you will. The drawbacks to this type of situation are the embarrassment of having to ask, of course, and the possibility of hard feelings if you should be unable to pay.
You may be able to get an advance in pay from your employer if they offer this benefit but this is less common. The advantages of this are that employer advances are usually taken automatically out of your check, either in installments or a one-time garnishment so there is no need to worry about it. However, if you are not careful, this could leave you in the same boat when the loan is taken out if you short yourself too much to be able to pay the rest of your expenses.
You may qualify for a personal loan through your bank or credit union. Some banks offer credit line options that can be used as overdraft protection or as a revolving credit account. This can often be for large sums, depending on your credit history and your standing as a customer. If you are a homeowner, you may qualify for a home equity line of credit which is secured by the equity in your home.
Other possibilities include taking a cash advance on your credit card, a small business loan through business organizations or even a reputable private loan company. Just keep in mind that interest rates on these types of loans can often be higher than other forms of credit, especially in the case of credit card advances. The bank often charges a much higher interest rate on cash advances than it does on credit card purchases.
When considering all your alternatives, make sure you carefully compare all the costs associated with each form of loan to see which one will be the least expensive option. Costs need to include the interest as well as any fees associated with the loan, from application fees to cash advance fees. Only by comparing all of the costs will you be able to determine the best option for your financial situation.
If you find yourself stuck and unable to repay any type of loan on time, you need to contact your creditor to discuss your options. By being frank with them about your situation, you may be pleasantly surprised at how willing they can be to work with you in order for you to be able to pay off your debt. Quite often, a lender or credit card company can lower your interest or your monthly payment in order to help you get caught up. Creditors are much more willing to work with a client who is coming to them for help than one who just does not pay.
In order to prevent getting back into the vicious cycle of debt, you must create a real, livable budget with which to work with. This must be a realistic and accurate picture of all of your income as well as all of your expenses. You need to know where you stand financially and an accurate budget will show this. If your income is less than your expenses, then you must either reduce your expenses or increase your income. Smart people will do both in order to get out of debt.
Try keeping a money journal for a one month listing how much you spent that day and on what. Be specific so you can get a realistic picture of where your money is going. Do this journal for each member of the family to see where money may be disappearing unnecessarily each month. Total all daily expenses to see what you are spending monthly. For instance, buying lunch at the corner deli is probably costing you at least $5 per day. That adds up to a whopping $150 per month that you could save if you took lunch to work with you.
You need to start saving money in a contingency fund. Once you have an emergency fund as back up for tough times, you can avoid having to apply for any costly credit option when unexpected expenses arise. It can be hard to think about saving money when you are in debt, but every little bit does add up, faster than you think. Once you have paid off your payday cash loan debt, turn around, and put that amount in the bank each month. After a few months, you will have a financial cushion that will protect you in case of car repairs or sudden plumbing bills.
It would be a good idea to get overdraft protection through your bank if you have a tendency to run your checking account down to zero. Most banks do not charge an extra fee for this service but will charge interest on any amount you end up using. The advantages are that you will avoid expensive fees for bounced checks and it will protect your credit rating. Make sure that you know all of the terms from your bank before utilizing overdraft protection and repay it as soon as possible to avoid additional expense.
If you are unable to set up a debt payment plan on your own or the companies do not seem to want to work with you, there are consumer credit counseling services that may be able to help. You will want to check the reputation of these companies before committing to one, especially if they are charging you a fee. There are many groups that provide these services for free or very low cost. You can even check with your bank, credit union or even the local housing authority as they may offer some counseling services.
The next time you think you may need a payday cash loan, remember to only borrow what you know you can afford to repay from your next paycheck. A payday cash loan can provide an easy solution to sudden money situations but they must be used responsibly. These loans are intended for short term relief, not long term financial management.