Payday loans are bad. Really, really bad. The crazy high interest rates they charge (400% APR or more) make them the most expensive loans available to consumers. As a result, the average payday loan gets rolled over 6 times before it gets payed. Which means that for every $100 you borrow, you end up paying $200 in interest! If you’re not careful, they can suck you into a cycle of financial destruction faster than you can say ‘bankruptcy’.
Last week, we did a post explaining just how terrible payday loans really are and this week, we’d like to share some alternatives to payday loans should you ever need some cash in a pinch. But before we get started, it’s important to note that many of these options should only be utilized if you’re in an absolute emergency situation. These are only band-aids to temporarily get you out of a jam and should be treated as such.
Tap into your emergency fund:
If you have any cash stashed away that’s liquid or semi liquid, now is the time to use it. Whether your money is in a CD, in stocks or under your mattress, these are the exact types of situations in which you should use your emergency fund instead of turning to payday loans.
Sell stuff:
Sell absolutely anything you can bear to part with. Look through your closet and apartment for the most stylish items you have and take them to a consignment shop to see what you can get for them. Post the items you couldn’t sell on craigslist or run tight, one day auctions on eBay with payments due shortly after the auction is over. Have a garage sale with any remainder items. Heck, sell your furniture if you have to! You’ll thank yourself for not getting stuck in the destructive cycle of payday lending.
Call your creditors:
Instead of juggling pay day loans to pay off other debts and obligations, try directly contacting the institutions where you owe money and negotiating a payment reduction or delay. Start with the places where you have a decent payment history and use that to your advantage.
Borrow from friends or family:
Asking for money from loved ones can be very difficult, but desperate times call for desperate measures. Increase your likelihood that the person you’d like to borrow from would say yes by explaining exactly what you need the cash for, how long you’ll take to pay them, and what you’ll do to make sure this doesn’t happen again. Alternatively, if you’d rather not borrow, you could ask them if you could provide services in exchange for the cash such as cooking dinner, doing laundry, tutoring, walking the dog, mowing the lawn etc.
Get a ‘Craigslist Gig’ or two:
Go to the craigslist site for your city and click on ‘gigs’ on the bottom right corner under the ‘Jobs’ section. These gigs are essentially one off odd jobs such as ‘pass flyers for $10/hr’ that you may be able to score for some quick cash.
Ask your employer for an advance or overtime:
Ask your boss if you can do some extra projects at work and try to qualify for overtime pay. If your employer offers no such options, you may also be able to get an advance on your next paycheck, but beware of making this a habit.
Adjust the tax withholdings on your paycheck:
Have you consistently gotten money back on your tax returns for the last couple of years? If so, you might want to increase the number of witholdings on your income tax for a few pay cycles. You’ll get a smaller return come tax day but at least you won’t be in debt. One caveat: Be sure to switch back on your witholdings after a few cycles. Otherwise, you may end up owing Uncle Sam down the line and if you can’t pay him back, that is scary on a whole another level.
Get a credit union loan:
Many credit unions will let you borrow a small amount, usually about $500 or so, for an APR of 12-30%, if you have an account with them. We don’t encourage borrowing one debt to pay off others, but try this option before you turn to payday loans and make sure you understand the APR and fees involved before you sign off on them.
Get a cash advance from your credit card:
It pains me to even recommend getting a cash advance from your credit card, but even with a $5 to $15 fee and a 20-30% APR, these are still much, much better terms than the 400% APR or more that the average payday loans charge.
Borrow from your 401k:
This can result in hefty penalties and tapping into your retirement nest egg is almost always a terrible idea, but, in many cases, it’s still better than getting a payday loan. Only borrow the amount that you absolutely need and replace it as soon as you’re able to. Make sure you understand the penalties and fees involved before you decide to borrow from your 401k.
We hope you never find yourself in a situation where you need to use these alternatives to paydayloans to make ends meet. If you repeatedly find yourself in such a situation, it may be time to take a hard look at your finances and make some serious adjustments. Also, if you’ve had any experience with payday loans and want the government to do something about it, click this link and leave a comment to get your voice heard.
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