If you are short on cash and you just need to find a way to add some to your wallet before the next payday, you might be one of millions who have considered a payday loan. However, this type of short-term loan comes with extraordinarily high interest rates and fees. You will most likely have an APR (annual percentage rate) of more than 300% (only 15 states have laws against higher than double digit interest rates), and for every $100 you borrow you will need to pay fees that average $15 or more. Suddenly this short-term supply of cash turns into a long-term debt problem. Instead of reaching for the notoriously expensive short-term influx from a payday loan, consider other options that might save you money in the long run.

Other Alternatives

Ask yourself – Is this an emergency? An interesting statistic shows that the majority of people who borrow from a short-term loan don’t actually need the money on an emergency basis. Of payday loan borrowers, only 16% need the money for a true financial emergency. In fact, studies show that approximately 80% of payday loan borrowers say that if they would be turned down for the payday loan, that they would just find a way to go without the payday loan.

So while you might feel like your finances really need the money right now, ask yourself if you absolutely need the money and can’t function without it. Yes – life might be easier with the extra padding in your wallet, but that padding will go away quickly and take with it anything you might have had left.

Set a budget – If you are unsure how to do this, contact a credit counseling service to help you get a plan that will help keep your finances in order and prevent you from needing a short-term payday loan. Plan your budget by beginning with the bare minimums of living – shelter, utilities, etc. If after you pay for these items, determine how much money you have left. Compare that to the debt that you owe. If you don’t have enough to make minimum payments, contact each creditor and ask to arrange a payment plan based on what you can afford each month. Get rid of those high interest debts right away.

Above all, once you have made this plan and made payment arrangements, stick with your plan. Creditors are usually much more willing to work with you on arranging for smaller monthly payments if they see that you are making good-faith efforts to pay down your debt.

Seek a debt consolidation loan – In some cases it is appropriate to seek another loan in order to consolidate several high interest loans. Make sure that you add up what you are paying in interest rates and compare those to how your payments are directly affecting your principal amounts of debt. If consolidation lowers you interest rate and your monthly payment amounts, you might be able to pay off debt faster and with less pressure to seek a short-term loan just to help with payments on higher interest rate loans. Just make sure that once you have obtained a consolidation loan that you do not go back to using those high interest cards and loans.

Borrow from family – While this is almost never a good practice when it comes to maintaining healthy family relationships, sometimes borrowing from family or even friends can help you get over that hurdle, especially if you will have that money on payday. Family might be much more likely to loan you the money in those real emergency situations, and you will know that you have what it takes to meet your financial obligations without going broke paying for the extra fees. You could even agree to pay back with interest and still end up spending far less than you would have for a payday loan. However, if you aren’t confident about your abilities to pay back the family loan, don’t risk ruining your relationships in order to find debt relief.

Other Ways to Avoid a Payday Loan

Use your credit card to pay off the item you need. The interest you pay on your credit card will typically be less than you will pay on your payday loan, and you will have a month to pay in full rather than the typical two week time period of a payday loan.

Get a part-time job just for debt. If you’ve accumulated credit card, medical, or academic debt, get a position 10-15 hours a week and dedicate that money earned to only paying down your debt, and not for everyday living expenses.

Whichever method you determine is best for you, make a commitment to see that it works. Going deeper into debt with a high APR of a payday loan is almost never the key to financial freedom.

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Moe Bedard
Founder at LoanSafe.org
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications. I currently live in Carlsbad, California with my beautiful wife and children.

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