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7 ways to avoid payday loans

[Jul 15, 2011.]

 

The problem many consumers have with easy payday loans is that they are too easy. If you find yourself relying on payday loans often, it is time to consider alternatives to this potentially expensive method of dealing with emergency cash needs. Make sure you compare the cost of borrowing money through other methods with the cost of payday loans, because sometimes, provided you repay the loan on time, the payday loan will be less expensive.


How to avoid payday loans



  • Borrow from relatives and friends. While borrowing from someone you know can be embarrassing, the emotion could help you in two ways: you are more likely to repay the loan as soon as possible and likely to seriously review your financial situation so you don't have to ask again.

  • Get an advance. Some businesses will give you part of your paycheck or all of it early if you face an emergency. Just make sure you remember that you received an advance so you are prepared for a smaller or nonexistent paycheck on your usual payday.

  • Ask your bank for a small loan. Some credit unions and banks, in response to the economic hardship faced by many Americans, are starting to offer small short-term loans to their customers. Find out the interest rate and any other conditions attached to the loan. For example, some financial institutions insist on the customer opening a savings account with part of the loan in order to begin building an emergency fund.

  • Start saving. Even if you aren't required to open a savings account, you should start one yourself by having 10 percent (or just $25 to start) of each paycheck transferred directly into a savings account. If the money is transferred automatically you will be less aware of it. By the end of the year, if you have saved 10 percent of each paycheck, you will have a little over one month's worth of income saved.

  • Get counseling. Plenty of consumers need help getting a handle on their spending. The National Foundation for Credit Counseling (www.NFC.org) can locate someone who can give you free counseling to help you create a budget and give you advice on debt problems.

  • Military aid. If you are in the military, the credit union or bank on your base should offer the lowest rates for short-term loans. The federal government capped interest rates at 36 percent for payday loans for military members.

  • Cash advance from a credit card. Be careful here, because many credit card companies will charge you a fee and a high interest rate for a cash advance. Make sure to compare the credit card rate with a payday loan rate.


Getting your finances in order is an important step to take to avoid relying too heavily on easy payday loans.


 

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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