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5 tips for responsibly using payday loans

[Jan 7, 2011.]

 

Every consumer has likely faced an immediate need for cash at some time, to repair a furnace, fix a car or pay for an unexpected doctor visit. While the best-case scenario would be to reach into an emergency savings fund, not every family has one. In the 2010 Retirement Confidence Survey by the Employee Benefits Research Institute, 27 percent of those surveyed said they had less than $1,000 in savings.


Without the savings to handle a crisis, consumers must turn to other alternatives such as credit cards or quick payday loans to cover an emergency. Credit card debt can mount quickly and derail plans for building a savings account. Short term payday loans can sometimes be a better alternative.


5 tips for responsible use of payday advance loans



  1. Be sure you can repay the loan. If you know that every penny of your next paycheck is already allocated for other bills, you may be unable to make the payment due on the payday loan. Make sure you have a way to set aside enough money from your paycheck to make the loan payment; otherwise you could end up paying too much in interest or needing another payday loan.

  2. Borrow the smallest amount possible. If you can find cash another way, or arrange to make small payments, for a furnace repair or other emergency, you might be able to take out a smaller payday advance loan. Smaller loans will not only be easier to repay, but they also will cost less in interest and fees.

  3. Only borrow from a reputable payday lender. In the midst of a financial crisis it may seem impossible to take time to check out a business, but spending a few minutes researching your potential payday loan company's reputation online and with the Better Business Bureau can be helpful.

  4. Borrow from only one lender. While it may be tempting to borrow from one payday lender to pay off another, this practice can lead to too many payday loans and an inability to repay them. Try to find an alternative source of funds such as borrowing from a family member, taking on extra work or selling items to repay payday loans.

  5. Limit your reliance on payday loans. A consistent need for an advance on your paycheck is a clear sign of a budget problem. Consider meeting with a non-profit credit counselor or establishing a strict personal budget to get your finances back on track.


Payday loans are meant to be a short-term solution to an emergency, so be sure to use them sparingly. When you do have to take out a payday loan, consider viewing it as a reason to revisit your budget and make room for a savings plan.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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