FTC Recommendations About Alternatives To Payday Loans
Payday loans are advertised everywhere as a good solution for consumers when they are in need of cash until their next payday. These advertisements try to make it sound like a cost effective solution by making their own fees sound lower in comparison to late fees that could be incurred from credit card companies if they are late. However, the FTC offers alternatives that don’t come at such a high cost.
One of the main reasons that the FTC is warning consumers against payday loans is because of the high fees. To borrow money for about two weeks until the next paycheck is in place, it could cost a consumer $15 or even more. If the loan is rolled over once or twice, it could cost over $50 in fees to borrow $100.
The FTC recommends getting a small loan from a credit union. Many banks also offer short-term loans at very competitive rates. Shopping and comparing all available offers ensures the best fee is discovered. This could also include a cash advance on a credit card as a possible solution.
Compare the APR and finance charge for all loans. Shopping for the credit offer with the lowest APR is of the utmost importance. There is protection out there for military personnel against the high credit fees and some states also have laws to protect consumers against very high rates. However, all payday loans can be expensive, particularly when a person begins rolling over the loan for a following term.
Contacting creditors can also prove to be advantageous. As soon as it’s obvious that financial problems are approaching, ask for more time. Many creditors are willing to work with consumers that are trying to overcome their financial problems. They may offer an extension on a due date without charging a late fee. This can allow a consumer to wait until their next check arrives instead of taking out a loan.
The FTC also suggests contacting a local consumer credit counseling service. A debt repayment plan may be the best course of action. Some will help to develop a better budget while others will focus on providing guidance in terms of how to overcome debt and make it more manageable. Those who need to resort to a payday loan once could fall into the habit of using them many times, which can send a person into further debt. An employer, credit union or even housing authority may offer free or low-cost credit counseling programs.
Creating a realistic budget can help. Learning to plan for monthly and daily expenditures will help to establish what the true financial situation is. Then unnecessary purchases can be avoided, such as the trips to an expensive coffee shop. At the same time, it is good to try and build savings, even with small deposits.
Understanding overdraft protection at a bank can also help. Some banks offer bounce protection for those who have underestimated their financials and will cover a check or debit transaction even if the funds aren’t there. Some will charge for this service while others don’t. It’s an important thing to know to avoid too many fees and even use it to one’s advantage.
Payday loans are ultimately not the only way to get the financial leeway necessary for survival. When absolutely necessary, borrow only what is needed and pay it back as quickly as possible.
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