Most of us have experienced a financial crisis that has made a payday loan look tempting. Whether it is an unexpected car repair or a medical bill you did not plan for, life can be full of financial surprises.
Payday loans are unlike traditional loans in that they do not require pre-existing perfect credit and they do not involve a lengthy application process. Even a person with bad credit can apply for a payday loan and have cash-in-hand on the spot or deposited into their account the next day. This can make a payday loan sound very tempting in a pinch.
However, the trade-off for ease of access is high fees and high finance charges. In addition, payday loan companies are often known to be revolving doors. When the bill comes due, payday loan companies will often renegotiate the terms of your payment to give you extra time to satisfy your debt. Meanwhile, they will have tacked on extra fees that make it virtually impossible to get out of debt. The Consumer Financial Protection Bureau states that more than 80% of payday loans are rolled over or renewed within two weeks.
It is in everyone’s best financial interest to avoid payday loans. We may not be able to avoid financial misfortune or surprise repairs, but with good planning and knowledge of other available resources it is possible to avoid payday loans.
Emergency Savings Fund
If you are considering a payday loan, it is probably a little too late for an emergency savings fund. However, emergency savings funds are one of the best ways to avoid being buried when financial mishaps occur. Experts have argued that an emergency fund of three-to-six month’s living expenses is ideal, but even $1000 can prevent most people from feeling the need to visit a payday loan company. Perhaps an emergency savings fund can’t save you from your current emergency, but starting one day today help to prevent the need to consider a payday loan in the future.
Personal Installment Loan from a Traditional Lender
Some responsible lenders such as credit unions or community banks will offer small installment loans to their patrons if you have been responsible with your finances in the past. Remember that financial misfortune happens to everyone, so there is no shame in seeking help.
Work Out a Payment Plan with Creditor
It may also be possible to work out a payment plan with a creditor that works with your budget. A financing company for a vehicle might be willing to tack this month’s payment onto the end of your contract if you inquire. A hospital might be willing to split a large medical expense into several smaller monthly payments. It is in the creditor’s best interest to collect, so they are often willing to work with clients who are proactive in seeking solutions for their debt.
Some employers will offer employees advances on their pay. It is not usually a good idea to make a habit of asking for an advance on pay, but employers understand that things do come up in their employee’s lives.
Emergency Charitable Assistance
There are emergency assistance programs that can help in some circumstances. There are charitable organizations that can help with a car repair or utility bill. If you suffer from a chronic medical condition, there may be advocacy organizations which can help. Sometimes churches, community groups or even companies can have charitable funds or hardship programs to help members in need. It is worth doing a quick search to see if such help is available in your area.
Tap Your Retirement Accounts
Although it is rarely a good idea to tap ones’ retirement account, in extreme circumstances it can be a good idea to do so to pay off debt or to take care of a large emergency situation. The tax penalties and fees involved with this is generally less than would be paid for a payday loan.
Life Insurance Loan
If you have a whole life policy, you may be able to take a loan against you what you have already paid into the policy. Unfortunately, those who only have term life policies cannot exercise this option.
Borrowing Money from Friends or Family
Although no one likes to borrow money from friends and family, it is usually the most cost effective option. If you are able to borrow from friends or family, please prioritize paying them back promptly. Few things can sour a relationship as quickly as a debt unpaid. However, when a friend lends money and is promptly repaid it can actually build trust and be a rewarding transaction for both parties.