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Consciously Frugal: Alternatives to Payday Loans
Thankfully, there are alternatives to payday loan centers.
Recently, a friend had to fly out of state for a family emergency. She mentioned that she would need to pop over to a payday loan business to get some cash for the trip, because she was "completely broke." I threw up my arms in disgust, blocked the door and lent her the money.
Don't have a panic attack. Yes, I know lending money to family and friends is sticky business. It's quite possible that I wouldn't see the money ever again. But my hatred of payday loan sharks is so great (and my love of this particular friend so deep) that I gladly would have eaten the loss instead of giving those rat bastards a red cent.
Why the profound loathing? Payday loan centers frequently charge more than 400% interest and lock people into a never-ending cycle where folks find themselves borrowing from the payday loan center to pay the damned payday loan center. They're also most often found in low-income areas, preying on the poor. How an interest rate of more than 400% can even be considered legal is beyond my ability to comprehend.
This loathing begs the question--what do you do if you find yourself in a bind and don't want to have your eyes gouged out by these soulless bastards? Thankfully, there are alternatives to payday loan centers. But don't get too excited, because they all involve a bit of work.
1. Take from savings. Some of you may be saying, "What savings?" You may find yourself in a perpetual state of Never Having Enough and therefore frequenting payday loan sharks. Please forgive me, but this is where I'm going to get a little ugly. Ready? (Feel free to grab a cup of tea.)
Every single person--yes, every single person--I have ever talked with or coached has refused to make certain sacrifices to save money. Whether it's taking on a roommate, moving to a cheaper place, letting go of cable TV or cigarettes, the cry is always the same: I can't afford to save, and I can't cut back anymore. But the more you chip away at this defense, areas in which savings could be made are found. Folks just don't want to make those changes. If that's you, dandy. Just be honest with yourself. Stand in front of the mirror and say, "I'm going to pay 400% interest on this loan because I don't want to stop eating Taco Bell everyday."
One of the reasons why folks don't want to make tough changes is because they see them as permanent. But you don't have to cut out fast food or cable TV forever. Just do without for as long as it takes you to build a savings cushion. You can stay in a debt loop indefinitely or do without a coveted item for six months. Which sounds better?
To begin, make a list of 10 things you could do without if you lost your job. Now, pretend your job is gone and eliminate five of them from your monthly expenses. Stick the money saved into an account.
2. Get a second job, freelance or work overtime. This solution can sometimes be paired with the "I don't wanna!" excuse above. But remember, you don't have to work that second gig until you're 85. Even if it's a crappy job with crappy pay, it'll put money in your pocket that wasn't previously there. Another bonus? You'll be too tired to spend any money.
3. Try to cut a deal with your creditors. Pick up the phone and talk to people. Most will work out a reasonable payment plan with you. If you don't have the nerve, go have a conversation (it's free) with a counselor over at Consumer Credit Counseling Services. They're a non-profit organization that has developed relationships with countless lenders to secure lower interest rates on credit cards and other loans and can help you crawl your way out of that big hole o' debt. But beware of other "credit counseling" services. Don't trust organizations that want to charge you a fee upfront or those that tell tales of reducing your debt by half or any other such crap. Stick with CCCS.
4. Utilize emergency assistance programs. Many faith-based and social-service organizations provide emergency relief programs. For instance, the federal Low Income Home Energy Assistance Program provides financial help to low-income families who are in a weather related emergency (e.g., gas turned off in the dead of winter). You have to meet certain criteria, but check with local state agencies or your area Salvation Army. This goes for food stamps and other types of assistance, including IDAs (matching savings programs for low-income individuals and families). If you qualify, take advantage of these programs. They are there to help you get on solid ground. Your fellow Americans want you back on your feet and we all happily pay into these programs to help. Don't let misplaced pride get in the way.
5. Get a loan from a different organization. Local credit unions and small consumer finance institutions offer small loans. They are at a higher interest rate than offered at conventional banks but are far less expensive than payday loans. Don't assume you won't qualify. The FDIC launched a pilot program in 2008 to provide small loans through small to mid-size banks as an alternative to predatory lending. So far, it's working.
6. Ask your employer for an advance. If you work for a huge corporation, this might not be a viable option. However, if you work for a small business, your boss may be open to giving you an advance. The best part? No interest payment.
7. Sell stuff. Hold a garage sale, throw some stuff on ebay and craigslist or use the good ol' neighborhood pawn shop. Chances are you have things you don't need or use anymore, so why pay a gazillion dollars in interest when stuff that's just gathering dust could help you climb out of a bind?
8. Adjust your tax withholding. Do you get a fat tax return every year and somehow don't manage to save it? Adjust your withholding so you'll have more money each paycheck to help you get through the year.
9. Reduce your bills. Like cutting out things you don't really need (see #1), try to reduce monthly expenses. Do you really need 1,000 anytime minutes each month on your cell phone? If you have a cell phone, do you also need that land line? If you can't cut cable TV out all together, how about reducing it to basic cable? Is Netflix necessary in a world with public libraries and Hulu? Put the whatever you save from cutting back into an account for emergencies.
10. Borrow from friends or family. Virgin Money provides tools to create an agreement (for a fee, of course) to ensure that your loan is documented. This should put some worries to rest. Or you could just do it the old fashioned way, with a handshake. Just make sure you pay your loved ones back. Nothing destroys relationships faster than bad blood around money.
11. Take a cash advance from your credit card. I know it's shocking to hear me, the Supreme Hater of DEBT cards, suggest taking a cash advance on a card, but the 30% interest charged by these blood suckers is far less than a payday loan swindler.
Yes, the majority of these options center on finding ways to save. That's because savings is the only way you'll be able to extricate yourself from the debt wheel. Rest assured, it can be done. You just have to get honest with yourself, make some tough decisions (that in the end, really aren't that tough. Doing without temporarily is not slavery or living in Darfur, for the love of God) and stay the course. Once you commit to creating a solid financial foundation, it's amazing how much progress can be made in a short period of time.
Read more tips and topics that address living frugally in a socially conscious manner, respecting community, the environment and our global human family at: