Financial Risks with Payday Loans and How to Avoid Them

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Image via Flickr by GotCredit

Image via Flickr by GotCredit

Payday loans are very popular these days. We’ve all had one or at least came close to taking one. It’s a way to get fast money in less than 24 hours. However, what would happen should you take a loan for just general purposes – to go on vacation, purchase clothes on sale, or try to avoid a late payment on a bill? I’ll tell you the answer, an extremely high payment due for an over the top interest rate bill!

Payday loans are best used for emergency situations when you don’t have a week or two to come up with the money. For instance, if you have some issue with your car and it’s your only means to get to work (Uber, Taxi’s, Ride Shares, and Public Transportation are out of the question).

I have heard medical expenses being one of the top reasons people will take a payday loan – talk to the hospital and make an arrangement or even seek out a grant from the hospital. They may get in your business, but it’s better than paying that bill in full when you can qualify for assistance.

If you get that loan, it means you obviously did not have the available funds, and it’s easy to fall into the payday loan trap and borrow from multiple lenders monthly to stay on top. Because emergency financial situations can occur from time to time, it is best to have an alternate plan for securing the money.

Active Hours

I actually love this concept. Active Hours allows you to upload your hours to their site and cash in on your hours worked. The best part is the money is available to you that week and there are no interest charges! Home Depot, Walmart, Walgreens, and Starbucks employees are just a few of those that can participate. Definitely go check them out to ensure you can pay your bills on time and avoid interest fees!

Credit Unions  

One of the best alternative resources that you may want to consider is to borrow the money from your credit union. Credit unions will loan their member funds at lower interest rates, and you will have a more reasonable time frame to pay it back. Also, the penalties that’s normally levied via the payday loan establishments are eliminated. Therefore, the total payments are minuscule in comparison.  You can get a credit union account from living in an area or working in an area.

Get an Emergency Credit Card

As some would advise against getting a credit card because it’s tempting to use it, you should have one if you notice you take on too many payday loans. Keep this card frozen in your freezer or give it to a person you trust to release to you in an emergency. Then, the payday loan would only be necessary if you did not have enough credit available on your credit card. That’s the most responsible way to take out a payday loan.

Payday loans companies are not an evil entity. The interest rate of payday loans is high because of the convenience they provide consumers. However, to make it day-by-day, you must be able to save the money to do so. The interest you are paying on a payday loan could be pocketed and saved for your family’s future.

Check out other tips I have on repairing your credit, eliminating your debts, and saving money in my How to Fix Your Credit -Personal Finance Series.

What other suggestions do you have on how to save money and avoid having to take payday loans?

~ Independent, Smart, Diva! Like this post? Please share with your friends!

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