Payday Loans and Military Families

[Jul 23, 2010.]

 

When the car breaks down or a child needs medicine, some families have an emergency fund they can use to pay the bills. Military families, often on a tight budget, have not always established a savings fund and sometimes they lack access to credit. Short-term payday loans, as long as they are paid back in full as quickly as possible, can provide the cash needed in a crisis.

Military families had been targeted by predatory lenders, so in the Military Lending Act that went into effect October 1, 2007, new regulations limit the maximum interest lenders can charge for payday loans to 36%. The interest rate includes all interest, fees, credit service, renewal charges, and credit insurance premiums.

In order to avoid relying too much on easy payday loans, the Department of Defense has several suggestions for military families:

1. Build an emergency savings account of at least $500.
2. Contact military aid societies that provide grants and zero-interest loans to military families in emergency situations.
3. Look for a credit union, particularly one with members from branches of the military. Credit unions may offer small, low-interest loans that are less costly than payday loans. Some banks also offer these products. Check with your local credit union or bank about the possibility of taking out a small loan to cover your unexpected expenses.

Military families should take some long-term steps to improve their finances beyond saving a small emergency fund. Financial counseling is available for military members from financial management specialists at military installations. Free, confidential financial counselors and financial planners can offer advice 24 hours a day at 800.342.9647.

Military families and other consumers can also develop their own financial plans.

• Start by writing down your budget so you know how much money you have and where you spend it.
• Write down your goals, such as systematically paying off your debts, building a savings account of three to six months of expenses, contributing to a retirement account, or saving money for a college fund.
• Set deadlines to reach your goals.
• Create a system to pay yourself first to build your savings. Automatic transfers work well for most families.
• You may want to open different bank accounts for different goals. This system can make it easier to track how much you have saved for each goal. Once you have established a solid emergency savings fund you can focus on saving more for other purposes.

Using quick payday loans can be a good way to meet your immediate needs as long as you repay the loans on time and then starting planning for your future.

 

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.