Payday loan alternative to credit cards

[Oct 21, 2011.]

 

Whether you have been forced to use up your savings because you are unemployed or haven't built up an emergency savings fund, when a financial crisis occurs you need immediate access to money. While the best-case scenario would be to have a savings account with available cash, many Americans don't have one. When a car repair is needed for you to get to work or your child needs an expensive prescription to get over an illness, the money has to come from someplace.

Zywicki says one of the consequences of the 2009 CARD (Credit Accountability Responsibility and Disclosure Act) is that credit card companies have reduced credit limits, declined to offer credit to more consumers and have started charging higher interest rates and fees to new customers. Consumers with low incomes and bad credit are the hardest hit by these changes and therefore sometimes turn to advance payday loans which have higher interest rates.

More recently, the Durbin Amendment lowered the amount of money banks can earn on debit card transactions. In response, banks are beginning to increase other fees including monthly account maintenance fees and debit card usage fees. Again, consumers who have low balances in their accounts and who are struggling financially are the hardest hit, since customers who maintain high balances often have fees waived.

Careful payday loan use

The biggest problem many consumers have with payday loans is that they are unable to pay them back within the initial loan period. Not only does this result in customers paying higher fees, but they also sometimes take out more than one payday loan and end up with a spiraling debt crisis.

If you must take out a payday loan for an emergency, make sure you take appropriate steps so that you can repay the loan on time. Compare payday loans from one company to another so you know you are getting the best possible terms.

Consider the following payday loan alternatives:

• Ask your employer for an advance on your paycheck


• Borrow money from family or friends and set up a reasonable repayment schedule


• Negotiate a payment plan with the car repair shop or whoever you must pay


• Find out if local charities can help you with your emergency, such as a utility bill


• Ask your bank or credit union for a small loan

Once your immediate crisis is over, the next step is to begin saving before another emergency strikes. Even on a tight budget, you should be able to manage to put away 10 or 20 dollars each week. Arrange for an automatic transfer from each paycheck into a savings account, then gradually increase the amount transferred as you become used to living with a little bit less cash. If you can manage $100 per month, you'll have $1,200 at the end of the year, enough to cover many emergency needs.

 

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.