Payday loans: life preserver or anchor?

We knew a young man about 12 years old who decided that there was no way he was going to admit he couldn’t swim while he was on a youth group trip up in Canada. There were too many other boys around, most of them teenagers just a few years older, and he didn’t want to look like a wimp. So, he stood at the end of a diving board, knowing he didn’t really know how to swim and jumped off. Stupid? Maybe, but some people approach financial problems and payday loans the same way.

Fortunately for the young man, one of the kids in the youth group was an Eagle Scout who had taken life guard training. He knew what to do and had a life preserver in the water before you could blink. The young man took a merciless ribbing over his diving incident (by all accounts his dive was spectacular, the swimming, not so much) for the rest of the trip, but otherwise he was no worse for wear.

But what would have happened if the Eagle Scout had thrown him an anchor instead? He would have sunk like a stone, of course. Everybody knows that, so no one would throw an anchor to someone who is drowning. Yet, trying to get out a financial emergency using payday loans near you isn’t much different than trying to pull someone out of the pool with an anchor.

Don’t get us wrong. A payday loan CAN be a tremendous help if it’s used as a stopgap for an emergency, and then paid off right away. The problem is that most people, instead of using it like a life preserver and getting out of the deep end of debt, try to swim around with it for months at a time. It doesn’t take long before what looked like a life preserver is as heavy as any anchor. If you don’t pay them off quickly, they will drag you to the financial bottom and keep you there.

The thing is this: payday loans should be a last resort. Most people have someone who could help them out short term. Hell, if you’re that dead set on paying high interest rates, offer them to a friend. At least then your money will go to someone you like.

The problem is, just like the kid who couldn’t swim, most of us don’t want to admit that we’re in a bad situation financially. But ask yourself this: what’s really worse? Letting someone know you can’t swim before you jump in the pool, or after?…

Keeping your head above water

If you’ve had to take out payday loans to cover emergency expenses, you’re not alone by any means. Most of us have been in that situation before when you have to do whatever it takes to pay for car repairs, emergency travel, or even to keep bread on the table. And while we may have put ourselves in the position of having poor credit, being stuck in the cycle of constantly handing over your paycheck, then borrowing against it again isn’t exactly helping the situation.

You Need To Get Out

Here’s the thing. You don’t have to stay in that cycle forever. There are ways that you can get out of it. The simplest option is to just borrow a little bit less every time you take out payday loans. I know it can be tough making your bills on what you’re able to take home, but if you don’t want to keep handing money over every week, this is what you have to do. Consider this: If you’re maxed out on your payday loans, and another emergency hits, what are you going to do? Not a pretty picture, is it?

You Can Get Out

If you absolutely can’t pay down your loan even a little bit every time you get paid, then you are in seriously over your head, and you need some help. Fortunately, most states regulate the short term loan industry, and there are programs out there than can help you. Ask your payday lender. They may not be happy about it, but in most states, they have to tell you what your options are. Often, you can choose to pay back the loan over a period of several weeks or months. They might try to tell you that it will stop you from getting more payday loans in the future, but don’t let them kid you. For the interest they charge, they will lend you money again if you need it.

There’s Nothing Like Freedom

The best thing you can do once your payday loans are paid off is start paying yourself some of the money you have been paying them all this time. Start a savings account. Think about it. If you have put all that interest money you’ve been paying in a savings account over the past couple of years, you probably wouldn’t have needed to take out payday loans to begin with. Do yourself a favor. Once you get free, stay free.…

Payday loans: what not to use them for

OK, so you’re out shopping and you see the perfect pair of shoes. Suddenly, the other 300 pairs of shoes in your closet simply won’t do. You need those ones. And they’re (gasp!) on sale! You’ll never be able to get a better deal, and if you don’t hurry there’s no way you’ll ever be able to get a pair in your weird assed size anyway. Time to go get payday loans, right? Right?

Bzzzzzzzzt! Thanks for playing, the answer is no. There are some things in life that might merit paying enormous interest rates because they simply cannot wait until payday, but shoes (sorry, ladies) are not one of them.

Don’t get us wrong. We understand. That’s the only pair of shoes that could ever possibly go with the little black dress you bought with payday loans last month, because, of course, it was the only little black dress that could possibly ever make you look as thin as you want to look. OK, maybe not quite as thin as you want to look, but it’s as close as you were ever going to get.

Here’s the thing. If you take out a payday loan, you’re going to pay it back with 9%-14% interest in most cases. And that’s simple interest due in less than two weeks in most cases. If you factored it into annual percentage rates (APR) that banks use when giving loans, the interest rate is usually between 300% and 400%. And that’s a lot for a pair of shoes. Or a dress. Or anything, really.

There are some things in life that come up that absolutely, positively need to be taken care of right away. If your income depends on something (like reliable transportation) and you stand to lose more by refraining from taking out payday loans that you would lose by taking the loan out (and re loaning, in most cases), then fine, go ahead and do it. But, here’s a hint: none of those kinds of things have anything to do with shopping.

If you’re an impulse buyer, stay away from stores when you don’t have cash. Don’t even window shop. Trust us, you’ll be able to actually buy a lot more in the long run if you show some restraint now. And, believe it or not, you will eventually find a pair of shoes to match that dress when you actually have the cash to buy them. They might even be on sale.…

Handling payday loans

The best time to handle payday loans is before you ever take one out. Think about it. These cash advances on your payday charge in the neighborhood of 400% annual percentage rate interest. Now, granted, some people, because of poor decisions or just plain bad luck are in poor credit situations and don’t have any other options if they need money in a hurry. But there are some things you can do to make sure that you don’t find yourself in that situation.

First of all, the need for payday loans comes when two bad situations crash at the intersection of sudden financial need. Those situations are lack of on hand finances and lack of good credit. And, as long as you’re not currently in a crisis, these are both situations that can be fixed.

Let’s start with lack of cash on hand. You probably don’t think you have enough income to save anything. Hogwash. If you’ve ever taken out payday loans, you managed to pay them back, with 9%-14% interest tacked on. Imagine what could happen if you took just half of that and socked it away somewhere.

Assuming you took out a light loan, say $200, and paid moderate (for the payday loans industry) interest of 10%. You paid back $220. Now, if you’re like most people, you kept borrowing your $200 week after week because your budget doesn’t allow you that big of a hole. So, week after week, you hand another Andrew Jackson over to the cash store, never to be seen or heard from again.

From now on, take half of that every week when you get paid and put it into a savings account. In a year, you’ll have over $500, ready for emergencies. If you lack the discipline to keep your hands off the money, set your account up as a joint account with someone responsible and tell them not to let you take that money unless you have a real emergency. The bank will be happy to set it up so that it requires two signatures to withdraw the money.

Now, as for the lack of credit, you’re not helpless there, either. Take the other half of that $20 you’d be giving to the payday loans place anyway, and use it to pay off any debts that you have. Pretty soon, if you’re making efforts to pay off your debts, your credit score will improve and you’ll have more options when you find yourself in a tough spot. You’d be surprised how much of a difference paying back an extra $40 per month on your debts will go as far as building your credit goes.

Now, if you’re currently in the cycle of endless borrowing, make it a point to borrow a little less each time. Even if you only reduce it by $5, you’re that much closer to getting out of the hole. And don’t we all want that?…