Payday loans are an incredibly poor deal for the customer. It’s a loan with an absurdly high interest rate. If you take out a payday loan, you’re going to come out the financial loser almost every time. They almost always cause more problems than they solve.
Almost everyone knows that payday loans aren’t worthwhile, so why do they still exist? Like it or not, payday loan companies exist because there are people – quite a lot of them – who will happily take out such loans. There are many, many people who find themselves in a serious pinch before payday comes around and so they turn to payday loans.
It’s those people – the people who find themselves in a financial pinch without an obvious solution – that allow payday loans to thrive.
What’s the solution for people in that situation? There are actually quite a few solutions. Here are five tactics you can try if you’re in a tight spot and considering a payday loan – along with one more thing you should do to prevent yourself from getting into that spot ever again.
Visit a food pantry If you’re in a position where you’re consistently struggling to make ends meet, you’re probably eligible to receive food from your local food pantry. Pay them a visit. If you’re financially eligible, you’ll be able to get free food from them every month (most pantries allow one visit per family per month).
This simple step can make the difference between taking out a payday loan and being able to make ends meet. If you have food on the table for your family for the next week, that frees up money for other needs in your life.
Visit your credit union Many credit unions are getting into the small short-term loan business, except that they offer far better interest rates than payday loan companies. Even better, they will often make these loans to people with poor credit.
The best thing you can do to get into a position to receive these loans is to become a member of a local credit union. Switch to using a credit union as your bank and maintain good standing there by keeping money in your accounts.
Look into the FDIC’s Small Dollar Loan Pilot Program This program is enabling some banks to also participate in small short-term loans, with these loans being insured by the FDIC (taking some risk away from the banks). Just like with the credit union loans, you’ll have to stop in and apply for one.
For now, only a limited number of banks are in this program. Here’s a list of participating banks. If there’s one in your area, stop there before stopping at your local payday loan office.
Stop by your local Department of Human Resources. Many larger communities and counties have local emergency hardship loan programs. They loan small amounts to members of the community who are suffering hardship, often with extremely favorable terms.
If you live in a large community, find out where your nearest Department of Human Resources office is and stop in there if you’re in a serious financial pinch. They can help make the difference between today and payday.
Negotiate with your creditors If you need this money to pay off loans, give the businesses you borrowed from a phone call and negotiate with them. Explain your situation in clear, calm terms and ask for a due date extension.
Many lenders are surprisingly flexible when it comes to extending a due date for a few days as long as you approach the situation rationally and with openness about your difficulties. It doesn’t help them to have a problem with a borrower.
Make sure this doesn’t happen again by building an emergency fund If you ever find yourself in a position where you’re considering a payday loan, you absolutely need an emergency fund in your life. It’s pretty simple to set one up – you just tell your bank to move $20 a week from your checking into your savings account and then forget about your savings account. When an emergency occurs, then you have a cash reservoir to tap.
If you have an emergency fund, you become your own lender. There’s no interest to repay, just an emergency fund to rebuild. It makes financial emergencies much easier to handle.
Payday loans should always be your absolute last resort. There are many options available in most communities to help you come up with resources to help make ends meet without having to take out a very bad loan.