Don’t Pay Yourself With Pay Day Loans

Posted: November 21st, 2008 | Author: Mo2 | Filed under: Credit, Finance | Tags: Dangerous borrowing, Finance, Interest again you, Interest expenses, Investing, Pay Day Loans, Paycheck, risk, saving, Time against you |

What is a Payday loan?
A payday loan is a loan granted to you from a lender for a short amount of time with an exceptionally high interest rate. Nowadays, you can apply for a payday loan online and they make it very convenient for you. There’s no credit check for many and you could have gone bankrupt for all they care, as long as they get paid back.

The Advantages, if you want to call it that.
You get money! Yes, and you get it pretty quick for that matter. Sometimes they give it to you on the spot probably if you are a recurring customer. They also directly deposit the loan into your bank account, which is usually where they directly take out the money they have lent you plus interest when the loan is due.

Now for the Disadvantages
The major problem with these loans, and they are controversial loans by the way, are that they charge insane levels of interest. On an annualized percentage they could go over 700%. Now to put things into perspective, for every $100 you borrow, you could be paying $700 in interest! That’s an extremely scary thought.

These loans are directed at those that struggle to pay their bills on a monthly basis and at times need money in advance to pay bills or for other reasons. However, because of these high interest rates the loans can put individuals in a deeper hole.

Mo2 Thinks
There is good debt and bad debt. This is an example of horrible debt. If you’ve cornered yourself to the point that you are depending on Pay Day loans, you are going to have to seriously look at your financial situation. I understand that there are some of us that have no other choice but to live off of each paycheck and do so barely. However, even then there are things that you have to cut back on in order to make living your life a little less stressful financially.

Hope
First, you need to face the reality of things and not “hope” for the better. Hope is only a four-letter word in this case and unless you win the lottery or marry a millionaire, things will not change. Don’t shy away from this reality, if you’re sensitive about money, read my money sensitivity article.

Expense Reduction
Next, look at your expenses. What are the absolute necessities? I remember someone I knew depending on these payday loans and guess what? She didn’t need to but she was careless about her spending and someone fell behind every paycheck. If there are things you want but do not need, consider cutting back on these things. You don’t have to treat yourself to a martini after work every night or buy a three hundred dollar dress every month.

Emergency Fund
Have an Emergency Fund. It is said that you should have at least two to three months worth of pay in an emergency fund. An emergency fund should be very liquid (meaning near-cash). Investments like treasury-bills and savings accounts make for a good emergency fund.

Pay Off Debt Before Saving
Remember paying off debt comes before saving. You might think that contradicts with what I just said about an emergency fund, however it doesn’t. You need to build that emergency fund before you corner yourself in relying on payday loans. The only time you should have debt is when you are confident you can achieve a higher return on your investments than on your debt. Then you can pay off your interest and still have some.

Conclusion
If you’re relying on payday loans, you’ve gone past the red light and you really need to clean up your act. Work on getting yourself on track before the creditors get to you, they aren’t the friendliest people to deal with, I can guarantee you that. Reduce your expenses, pay off your debt first, and have an emergency fund for that rainy day and you should be ok. In the worst-case scenario, ask Aunt Elda for a little help. I shouldn’t say this but family is there to help in the worst of cases, don’t depend on them all the time, but if there’s nothing else you can do, I’m sure some of them are willing to help.

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