A new member of ours was
renewing his loan every two weeks by paying $65 and never
touching the loan amount of $300 until we lent him the money to
close it out.
Payday lending is a very
expensive form of borrowing when compared to more conventional
lending. Yet many people don’t feel that they have a choice.
They must pay their rent and utility bill or buy gas and food
but don’t feel there are alternatives; they just need to get
money from somewhere. The actual cost of fees and high interest
rates are not taken into account. Unfortunately, paying the high
interest and fees on a “Payday Loan” makes it more difficult
down the road to get out of the “short on cash” cycle.
Statistics show that people of
all income levels and walks of life use payday loans. Over one
half of payday borrowers have incomes greater than $35,000 per
year. Anyone can periodically run out of cash. An advance on
your paycheck might temporarily solve the problem. However, you
should shop for the lowest cost of credit.
There are alternatives to high
cost payday lending that can be put into play “before” you have
a need. Check with your credit union or other financial to see
if they can offer a small loan. Many credit unions offer
overdraft protection loans that are tied directly to your
checking account, and will automatically make an advance to your
account if you overdraw your checking account. Another choice is
to contact people that you owe, such as your landlord or utility
company, and make arrangements to pay at a later date. Often
their fees are less than payday lending services.
A traditional loan will have
lower fees, interest rate and payments and gives you more time
for repayment. This type of loan builds your credit rating where
“Payday Lenders” typically do not report to the credit bureaus.
How can you get out of the
“short on cash” cycle? The first step will always be to make a
realistic budget. There are organizations that can help you with
this, such as GreenPath Debt Solutions (800-718-7077). Check
with your employer, they may have this type of service or your
credit union or bank may also provide this type of service.
Having savings that you can
fall back on is also very important to getting your feet on a
sound financial basis. You may wonder how you will get a savings
built up when you are cash short. It takes discipline to do a
budget and stick to it, and it takes discipline to save a small
amount each payday, and leave it alone until you absolutely need
it, but it can be done. The key is to start small with an amount
that you can comfortably set aside and leave alone.
Here in Wisconsin, many credit
unions participate in a program called “Real Solutions” which is
supported by individual credit unions, the Wisconsin Credit
Union League, CUNA and the Filene Institute. It is an assortment
of low cost products such as checking, check cashing, wires and
other services. For example, Dane County Credit Union offers an
alternative payday loan program called Paycheck Plus with lower
costs, and longer terms. We also offer “Fresh Start” checking
account, a check cashing service called Check2Cash and low cost
wire services.
“Payday Loans” and other
sources of fast cash, such as title loans and pawn shops, often
charge exorbitant rates. When looking for credit, see your local
credit union or bank, and see how your needs can be met at a
fair price.
For additional information,
contact:
The Federal Trade Commission:
www.ftc.gov or 1-877-FTC-HELP
The National Endowment for Financial Education:
www.nefe.org.
