So, who has heard of these PayDay Loans? Sounds interesting, and you may be thinking, “hmmm, tell me more.” Well, what I’m going to tell you is to run. Stay away from them if you can. It may sound extreme, and I honestly have no personal experience with them, but from what I’ve read and learned, run. Run away as fast as you can. “Why” you ask? Let’s see…
What Is A PayDay Loan?
A PayDay Loan is a short-term loan where a lender will extend you high-interest credit based on your income and credit profile. They’re also known as cash-advance or check-advance loans. These loans typically range from $100 to $1000 and last a term of about two weeks. And I did mention the high-interest rates….right? What do I mean by high? Well, the average PayDay Loan interest rates range from 390% to 780% annual percentage rate. Not to mention the finance charge to borrow the money. For example, some places will charge $15 – $30 to borrow $100. This it NOT good.
Why Do People Get Them?
People will get these loans when they are desperate and need money quickly. Unfortunately, these people do NOT have enough money saved to cover what they need, so they are forced to seek a PayDay Loan to get what they need now. And who can blame them? If you desperately needed $100 now and had no one who could give it to you, what would you do? You can’t go to a bank and get a really quick loan. It can take days or weeks to get a loan from the bank. But you can get a PayDay Loan in about 15 minutes. Additionally, people who need PayDay Loans find themselves caught in a cycle where each week they need another loan to make up for the money they paid the previous week for their loan. They’re trapped in a vicious cycle and can’t seem to get out.
How To Avoid Needing A PayDay Loan…
The best PayDay Loan is the one you DON’T need. In order to avoid the need for this type of loan, there are a few things you can do:
1. Live Within Your Means
Too many people spend money they don’t have on things they don’t need to impress people who don’t care. Don’t buy the Oakley sunglasses if you’re living paycheck to paycheck. Knock offs are fine.
2. Get Rid Of Bad Credit
You need to make all your debt payments on time and avoid taking on any new debt. Bad credit only compounds money problems. Try getting a new car or new house with bad credit. I’m not saying you can’t, but your interest rate is going to be huge. And if you have debt, DON’T add more!!!
3. Save Your Money
I’ve said this before. You have to save some money. Start an Emergency Fund and aim to put at least $1000 in it as quickly as you can. That’s the bare minimum. Once you have the $1000 in there, come up with a plan to put up to 3 months of expenses in there. If you can get at least $1000 in your Emergency Fund, then you should NEVER have a need for a PayDay Loan. If you do, then there is a bigger problem going on.
The Takeaway
PayDay Loans can be a savior for people who are desperate but a curse to those who need them. They cost too much money, trap people in a cycle, and don’t fix the underlying problem of poor money management and lack of an Emergency Fund. I’m not putting anyone down who has ever needed a PayDay Loan. I understand things happen. What I’m suggesting is that you do whatever you can to avoid them at all costs. You don’t need those high-interest rates nor the fees to borrow money in the short-term. There’s a better way to money management.
I’m not a financial advisor, so please take what I say here with a grain of salt. If you’re having money issues and find yourself in need of or trapped in the cycle of PayDay Loans, consult a financial advisor for help. Good luck!!!