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Four alternatives to keep you out of the payday loan trap


If you’re in a financial jam, payday loans may look like an attractive choice. They’re relatively easy to get (i.e., you don’t need great credit) and quick access to cash. And the people in the ads and emails you receive look happy and content.

But there are a few major downsides:

They trap you. To get a payday loan, you have to write a post-dated check for the loan amount up front. If you fail to pay it back on time, the lender will deposit the check, or you can write a second post-dated check for another loan, trapping you in an expensive and escalating cycle.

You have to pay them back in a short amount of time. Sometimes the timeline is as short as two weeks.

They have huge fees. Interest rates can range as high as 400%, according to the Consumer Financial Protection Bureau.

However dire your situation may be now, it’s likely to get worse with a payday loan. If you’re facing payments that you can’t make and feel that you’re running out of options, try these tactics instead:

1. Contact your lender

A large credit card debt may seem insurmountable. But before you turn to an expensive payday loan as a solution, see if your lender will work with you. 

It’s not unheard of for a credit card company to negotiate your terms, rates, and occasionally your principal balance. Be honest about your circumstances, and emphasize that you intend to pay as much as you can as soon as possible.

2. Re-examine your budget

You might find that you can free up cash by changing your spending habits. Review your bank and credit card statements and track where your money goes every month with a budget.  Your Credit Union’s expert online budgeting tool makes light work of tracking your expenses. Take a look.

Then identify discretionary expenses like eating out or a gym membership that you hardly use, and cut them out of your budget.  

3. Apply for a personal loan

As a last resort, you can apply for a personal loan to pay off your expense. Just make sure that the new loan has an affordable interest rate, so that your solution isn’t worse than the problem. Be prepared to offer some collateral to get approved for this type of loan.  Your Credit Union has an excellent range of relatively low-cost loans that can provide, subject to qualification, funds at interest rates that are a fraction of the cost of a payday loan.

4. Speak to your Credit Union.

“Two heads are better than one,” as the saying goes. When trying to figure out what to do next, be sure to lean on your Credit Union for advice. In our almost 90 years helping members we’ve developed a lot of financial smarts,  and can help you make the best decision for your unique circumstances. Give us a call!

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