Alternatives to Payday Loans
Dealing with financial emergencies without a payday loan
People who take out a payday loan expect it to be a one-time thing. They take out the $250 fully intending to pay it back in two weeks, or less. However, the average payday loan customer is in debt for five months and pays $520 in interest (on top of the original loan amount), according to research from Pew Charitable Trusts.
When an emergency arises, you may need to get your hands on cash in a hurry, but there are a few things you can do to increase your cash on hand.
Sell or pawn things you no longer need
You can use eBay or Craiglist to sell off household items you don't need anymore. It's worth the sacrifice to sell things you may not have a strong personal attachment to, like a pool table or grill. Some items can be taken to the pawn shop for a quick sale. Or, have a yard sale to unload multiple items at one time.
Talk to your creditors about extending your due date
When you know you won't be able to make your payment, call your creditor and let them know. Many will allow you to extend your due date without charging a late fee or reporting you to the credit bureau. Do the same with utility or phone services.
Work some overtime
If your employer allows it, work a few extra hours to get some overtime pay.
Get a side job
If you have a hobby or skill that's in demand, offer your services to people in exchange for money. Author Erin Huffstetler, in her Guide to Frugal Living, has an extensive list of hobbies that earn money.
Ask your employer for an advance
In effect, this is the same thing as a payday loan, but without the excessive fees and loan trap. Talk to someone in your human resource department about an advance on your next paycheck. Keep in mind that getting an advance will lower your next paycheck. Some employers even give loans that can be repaid in increments over multiple pay periods, lessening the effect on your take-home pay.
Adjust your tax withholding
Having extra money withheld from your paycheck so you can get a bigger tax refund is a bad idea when you're struggling to make ends meet. The IRS website has a tax withholding calculator you can use to figure out how much tax should be taken out of your paychecks. Be careful to make sure you're getting enough taxes withheld, otherwise you'll end up owing taxes next April.
Cut out some of your bills
Decrease your monthly expenses. Eliminating some of your bills can give you a quick boost in your income this month.
Look for local emergency hardship programs
You may find some local organizations who will give or loan you money to help you out. Contact your local Department of Human Resources to find out if there are any emergency assistance programs in your area. Local churches and other humanitarian organizations (like the Salvation Army) are also places you can look for help.
Borrow from a friend or family member
Borrowing from friends and relatives can be tricky. Money and friends/family often don't mix and you can end up with a broken relationship, which can be even worse than owing a payday loan company. Keep that in mind as you consider going to a loved one for money. Be as serious as paying back a friend or family member as you would the bank or business lender.
Take out a small loan from your bank or credit union
If you have a steady income and pretty good credit, you may qualify for a small personal loan from your bank. These definitely have lower interest rates and more lenient repayment terms than a payday loan or check advance.
Pay with your credit card
If you have a credit card with available credit, use it to fund the purchase rather than taking out a payday loan. Don't make it a habit, using your credit cards to pay for regular expenses like groceries or gas are signs of a bigger money problem.
Use a credit card cash advance
Credit card cash advances can be expensive, but if you shop around for low fees and good interest rates, it will surely be less expensive than a payday loan. You may have to work hard to pay the high interest and fees on a cash advance. Since credit card cash advances have higher interest rates, don't charge anything else on the credit card and pay off the balance as quickly as possible.
Get consumer credit counseling
If you're having trouble making your credit card payments each month, a consumer credit counselor can help you lower your monthly payments to a managable level. Seek credit counseling early to protect your credit score.
Sign up for your bank's overdraft protection
Your bank might offer an overdraft protection plan that pays overdraft items with a line of credit. Talk to a customer service representative about signing up for this kind of plan. This is an alternative to bouncing a check which leads to non-sufficient funds fees from your bank and returned check fees from the merchant.
Dip into your emergency fund
This is precisely the type of expense you can use your emergency fund for. After you take money from your fund, make sure to put it back so you have it in case another emergency arises.
Once you get caught in the trap of payday loans and check advances, it can be difficult and costly to get out. Avoid the trap altogether by exploring alternatives before handing a blank check to a payday loan business.