Tight For Cash? Avoid Payday Loans With These 3 Alternatives
As the New Year is underway, personal financial security once more comes to the forefront of financial consciousness. Holiday spending often leaves many in uncomfortable positions, especially if nickel-and-dime budgeting is not a personal forte.
While adequate planning is ideal, January often rushes in and meets the well-intended with an emaciated pocketbook ledger. It is important in these situations to prudently remember that quick fixes can lead to debt traps that could quicksand tight budgeting practices.
Instead of letting anxiety run rampant and potentially ruin volatile financial situations, take time to consider all available options.
Avoid Payday Loans
Often advertising too-good-to-be-true promises, payday advance loan companies feed upon the desperate and those in search of a momentary (vs. permanent) fix. Recently, these companies have come under severe scrutiny from the Better Business Bureau , various Centers for Lending Responsibility and federal agencies -- calling them out for exorbitant fees and interest rates.
According to the federal agency Consumer Financial Protection Bureau, 62 percent of payday loans, "are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed." The report continued by stating that more than 80 percent of all loans go unpaid by the next pay-period.
Because of this spiraling trend, 22 states have limited or completely banned payday advance loan practices. Unfortunately, that still leaves the practice fairly accessible to vulnerable individuals. Before considering payday loans, consider looking into other, more reliable and permanent solutions.
1. Credit Union Loans
While most other small loan options will require a credit check, the fees and interest rates are inevitably lower than payday loans. Additionally, because of the checks involved in the practice, promptly repaying federal credit union loans can boost credit scores. Receiving a small line of credit or a STS (Short-Term Small) loan from a credit union is an attractive alternative for decreasing momentary financial right spots.
Each credit union functions differently, but there are federal regulations that all federal credit unions must follow, such as the maximum allowable APR percentage, set caps and a minimum enrollment period with the credit union. These stipulations are in place to protect the credit unions and the individuals looking to borrow. According to the federal credit unions' government-run website, these practices are in place to provide "consumers with an alternative to borrowing from potentially predatory payday lenders."
2. Unsecured Personal Loans
These small loans are typically available to those with high credit scores and do not use property as collateral. The benefit of these loans is the extended amount of time granted to repay the amount borrows and a fixed payment schedule. The interest for unsecured personal loans is higher than HELOC loans. As with credit union loans, each institution functions uniquely; therefore, looking into more than one bank and comparing terms and interest rates is recommended.
3. Personal Lines Of Credit
While the downfalls of holding credit cards are widely publicized, one attractive benefit of opening a personal line of credit is that the interest rates only apply to the amount borrowed. Unlike personal loans (either through a credit union or bank), borrowing the credit limit is possible without applying for a new loan. In other words, if a line of credit has a $5,000 cap, the borrower can perpetually borrow $5,000 as long as the previously borrowed amount is repaid.Used wisely, personal lines of credit can help individuals get out temporary tight spots.
Whatever method is chosen to ease minor financial discomfort, take the time to explore all options and compare the long-term implications before prematurely digging yourself deeper into unnecessary, near-impossible-to-repay debt. Momentary financial issues do not need to be death sentences for your financial health. Invest in yourself and research all available options before acting impulsively.
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