**Today’s guest post is contributed by Christian.**
If you want to maintain a healthy credit history, stay away from payday loans.
A recent Consumer Financial Protection Bureau report shed light on how damaging these pay-advance options can be. Check out the study yourself to get the full picture. You’ll likely notice how the fees can quickly add up since the fee is calculated as a fixed dollar amount per $100 borrowed.
Or maybe you’ll see that the median amount borrowed was $350. Perhaps the fact that 14 percent of borrowers had more than 20 payday loan transactions in a 12-month period stands out to you. But the most impactful statistic highlights how toxic payday loans can be.
Two-thirds of consumers in the report took out at least seven payday loans in a year. These consumers often opened a new loan within a day of closing one, but most often opened a new loan within 14 days of closing one. Payday loans basically become a constant source of cash in place of paychecks.
So how do you avoid the payday loan trap when you need money in advance? Take a look at these options.
Credit Cards
Being smart with a credit card is a great financial move. As long you’re paying the balance of in full every month, credit cards are much safer than payday loans. Swipe a card and pay it off as soon as you get your paycheck. You may even be able to take out a cash advance on a credit card. The interest rate will still be high, but even if it’s 40 percent, it’ll cost far less than 300 to 500 APR on a payday loan.
Small Loans
Credit unions and small banks can offer loans in small amounts with better interest rates and repayment terms than a payday loan. It’s best to find one with a repayment period of no less than 90 days that can be repaid in installments. This way you’re not constantly paying fees like a payday loan borrower does every two weeks.
Paycheck Advance from Employers
If you’re fortunate enough to have a benevolent employer, you could get a paycheck advance. It’s the same concept as a payday loan, but there’s no interest and it’s your money so you won’t fall into debt.
Borrow Money from Friends or Family
For consumers who don’t need much money in advance, ask friends or family for some help. Chances are they won’t ask for an interest rate, but don’t burn bridges by never repaying them.
Use Your Emergency Fund
There’s a reason personal finance blogs advocate building an emergency fund. When an unexpected expense pops up, you’ll be ready to use these dedicated savings.
Live Within or Below Your Means
No matter what, this is a good mantra to live by all the time. Spend money within your means and you won’t even need credit cards or cash advances of any kind. Evaluate your needs versus your wants and cut expenses from the latter.
If you want to maintain a healthy credit history, stay away from payday loans.
A recent Consumer Financial Protection Bureau report shed light on how damaging these pay-advance options can be. Check out the study yourself to get the full picture. You’ll likely notice how the fees can quickly add up since the fee is calculated as a fixed dollar amount per $100 borrowed.
Or maybe you’ll see that the median amount borrowed was $350. Perhaps the fact that 14 percent of borrowers had more than 20 payday loan transactions in a 12-month period stands out to you. But the most impactful statistic highlights how toxic payday loans can be.
Two-thirds of consumers in the report took out at least seven payday loans in a year. These consumers often opened a new loan within a day of closing one, but most often opened a new loan within 14 days of closing one. Payday loans basically become a constant source of cash in place of paychecks.
So how do you avoid the payday loan trap when you need money in advance? Take a look at these options.
Credit Cards
Being smart with a credit card is a great financial move. As long you’re paying the balance of in full every month, credit cards are much safer than payday loans. Swipe a card and pay it off as soon as you get your paycheck. You may even be able to take out a cash advance on a credit card. The interest rate will still be high, but even if it’s 40 percent, it’ll cost far less than 300 to 500 APR on a payday loan.
Small Loans
Credit unions and small banks can offer loans in small amounts with better interest rates and repayment terms than a payday loan. It’s best to find one with a repayment period of no less than 90 days that can be repaid in installments. This way you’re not constantly paying fees like a payday loan borrower does every two weeks.
Paycheck Advance from Employers
If you’re fortunate enough to have a benevolent employer, you could get a paycheck advance. It’s the same concept as a payday loan, but there’s no interest and it’s your money so you won’t fall into debt.
Borrow Money from Friends or Family
For consumers who don’t need much money in advance, ask friends or family for some help. Chances are they won’t ask for an interest rate, but don’t burn bridges by never repaying them.
Use Your Emergency Fund
There’s a reason personal finance blogs advocate building an emergency fund. When an unexpected expense pops up, you’ll be ready to use these dedicated savings.
Live Within or Below Your Means
No matter what, this is a good mantra to live by all the time. Spend money within your means and you won’t even need credit cards or cash advances of any kind. Evaluate your needs versus your wants and cut expenses from the latter.
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