Payday loans are the worst form of credit that you can ever take out to cater your financial needs.
That’s the end of the discussion!
I believe I should stop right here as I have made myself clear!
But, I can’t. Say why?
Because, even though many of us understand that payday loan is dangerous, still every day many go for them and ruin their financial standing by paying interest rates that can be anywhere from 300% and beyond.
My question is why?! I mean is it even necessary to fall prey to monstrous payday loans, while you have so many other options?
Today our discussion will be elaborate!
We will try to figure out whether or not it is even that necessary to consider payday loans in times of financial emergency.
Or, in other words, why do these loans exist, and should we give them enough importance.
And, we will see in that context, what are the different payday loan alternatives you should choose instead of incurring debt in the form of such high-interest paycheck loans!
What are payday loans and why do they carry huge interest rates? And, what are their importance?
It might sound silly to answer, what is a payday loan, to all of you people who have made a mess of it by taking them up nearly every other month!
But, there still are many of us, who don’t know what it is, and are just about to enter the ring of fire! For them, I will answer with as much lucidity as possible!
Payday loans are traps for consumers who don’t have confidence in their decisions and rely on debts for momentary relief!
The payday lenders use this ‘lack of confidence’ weakness, as an advantage and lure consumers to take out these loans in times of financial emergency.
The lenders very well know that most of the times, it is impossible for the clients to repay the loan by the scheduled payback date.
And, that’s why they keep on increasing the interest rate and renewal fees, so that it becomes way harder for the consumers to repay the loan!
This will also ensure that the lenders can have a huge profit margin that we can never think of!
So, if you ask me that if there’s any importance of payday loans in the financial market, at all, given everything said and heard about it is bad, I will always answer that there’s absolutely no point in its existence.
We can do pretty good without these paycheck-or-payday loans!
Here’s exactly how
Options that act as good payday loan alternatives:
-
1. Following a budget so that questions of credit and payday loans never arise in the first place:
Budgeting is the real art of financing and the main key to financial happiness.
If you follow a nice budget from the beginning, then your finances will be straight, and your chances of going deep waters in times of emergency and unplanned expenses will be thin!
You should consider the recent trend of backward budgeting. This style of money management focuses mostly on building savings and paying off debts.
Now, trust me, savings is the only big weapon that will hold you back from falling into the hands of loans and debts.
Backward budgeting is pretty simple and easy to apply. Each month as you receive your paycheck, you just need to keep aside your desired savings amount!
Once, you have taken care of your savings you can continue with your monthly obligations and expenses.
You make a long list of your probable expenses for the month, and allot fixed amounts to your expenses!
We call it backward budgeting because instead of giving expenses the prime priority, we are considering savings to be the first liability.
You will see that after you have taken care of ‘savings’, your expenses will surely get limited!
-
2. Cash-out refinance, HELOC, or a Home Equity Loan ain’t that bad:
This part might sound inconvenient as people usually take out payday loans for small cash emergencies, but using your home’s equity is pretty beneficial and noteworthy.
You can do a cash-out refinance, if you both need money, and need to change your mortgage loan terms.
With cash-out refinance, your existing mortgage loan will get overwritten by a new mortgage, and the amount that you have already built in as equity will be given to you in cash value.
On the other hand, a HELOC (Home Equity Line Of Credit) acts pretty much like a credit card, where your home’s built-in equity will be the credit limit.
You can take money out of HELOC, as per your need, and pay back the borrowed amount over a period of time at a very affordable interest rate.
But, a Home Equity Loan is just like any other conventional loan, only that your home’s equity will be used as a security.
You can consider it to be a personal loan, where the maximum amount you can take out, is probably 80%, but depends on the bank issuing the loan.
However, be careful with these three options, as you have your house attached as a collateral! One wrong step and you might lose your residence.
-
3. Break into your life insurance and retirement accounts:
Some think it is a big mistake to break a whole term life insurance or dig into retirement accounts for financial needs. But is it even that bad as a payday loan?
It’s better to pounce on your own savings and investment vehicles rather than paying someone else huge amounts of cash just because you borrowed some one or two grands!
But you should keep in mind that life insurance and retirement accounts are assets!
It’s better you have a talk with a financial advisor, so as to calculate tax penalties and other losses you might face, if you pull out cash from these investment tools. -
4. Credit cards – probably the most convenient form of credit:
Credit cards are the modern generation saviors! You can buy anything on credit! What more do you want?
And, when you need liquid cash, you can also withdraw money using your credit card. But interest rates will start to accumulate on a daily basis, on the borrowed money.
This might not be a very good alternative to payday loans (that’s why put it at the last of this post), but it’s definitely better than payday loans, as in the end, you are not paying 200% or 300% interest charges!
Your different options for paying off existing debts, rather than using money from payday loans:
If you have been taking out payday loans to make payments for your debts and bills, then it is the dumbest and worst decision you have made.
Ultimately you will end up having more debts if you are doing so!
So, for existing debts, you can always choose the two master options, debt consolidation and debt settlement.
With debt consolidation, you pay off your multiple debts with single monthly payments.
You can either Do it Yourself or take help of a consolidation company. If you plan for DIY, then go for a credit card balance transfer or take out a personal loan, pay off the debts, and then continue doing payments for the loan or the single credit card only.
But if you choose a consolidation company, then along with consolidation, they will also provide you with a budget plan, and might also lower extra charges or penalties on your debts.
On the other side, you have debt settlement. Pretty effective as it helps you to lower your debt amount after negotiating with your creditors.
We never recommend you to do settlement all by yourself as the negotiation part is really tough to do it alone single-handedly.
Plus guess what?
If you are already surrounded by big amounts of payday loan debt, then you can use debt settlement to pay off these debts! Contact a debt settlement company, and be wise!
So, from now on, if anyone asks you what is a payday loan?
You answer got to be- “I dunno man, is that some sort of EDM?? Like PDL??!!!!”