Tight for money? Avoid Payday Loans With These 3 Alternatives


As the New Year approaches, personal financial security is once again coming to the forefront of financial awareness. Vacation spending often leaves many people in an awkward position, especially if one hundred percent budgeting isn’t a personal forte.

While proper planning is ideal, January often rushes in and meets the well-meaning with an emaciated paperback ledger. It is important in these situations to carefully remember that quick fixes can lead to debt traps that could undermine tight budgeting practices.

Instead of allowing anxiety to spread and potentially ruin volatile financial situations, take the time to consider all of the available options.

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Avoid payday loans

Often by advertising promises that are too good to be true, payday loan companies feed off the desperate and those looking for a momentary (vs. permanent) solution. Recently, these companies have come under scrutiny from the Better Business Bureau, various Centers for Lending Responsibility, and federal agencies, asking them for outrageous fees and interest rates.

According to the federal Consumer Financial Protection Bureau, 62% of payday loans, “are given to people who extend loans so many times that they end up paying more in fees than the original amount they borrowed.” The report goes on to state that over 80 percent of all loans remain unpaid before the next pay period.

As a result of this spiraling trend, 22 states have restricted or completely banned payday advance loan practices. Unfortunately, this still leaves the practice fairly accessible to vulnerable people. Before considering payday loans, consider researching other more reliable and sustainable solutions.

1. Loans from credit unions

While most other small loan options require a credit check, the fees and interest rates are inevitably lower than payday loans. In addition, due to the controls involved in the practice, prompt repayment of federal credit union loans can increase credit scores. Receiving a small line of credit or an STS (Short-Term Small) loan from a credit union is an attractive alternative for reducing momentary financial good times.

Every credit union operates differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowed APR percentage, set limits, and a minimum registration period with the credit union. These stipulations are in place to protect credit unions and people looking to borrow. According to the government-run Federal Credit Unions website, these practices are in place to provide “consumers with an alternative to borrowing from potentially predatory payday lenders.”

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2. Unsecured personal loans

These small loans are generally available for people with a high credit score and do not use the property as collateral. The advantage of these loans is the extension of the time given to repay the borrowed amount and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution operates in a unique way; therefore, it is recommended to look at more than one bank and compare the terms and interest rates.

3. Personal lines of credit

While the downsides of owning credit cards are widely publicized, one of the cool benefits of opening a personal line of credit is that interest rates only apply to the amount borrowed. Unlike personal loans (whether through a credit union or a bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a limit of $ 5,000, the borrower can perpetually borrow $ 5,000 as long as the previously borrowed amount is repaid.

Whichever method you choose to relieve mild financial discomfort, take the time to explore all options and compare the long-term implications before prematurely plunging deeper into unnecessary and nearly impossible to repay debt. Momentary financial problems don’t have to be death sentences for your financial health. Invest in yourself and research all the available options before you act impulsively.

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