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Beating holiday financial blues

  • Published
  • By Michael Schull
  • Family Support Center
Did the holidays leave you short on cash? Are your bills piling up? 

If you found yourself answering “yes”, you might be considering a payday loan. Although there are some benefits to these loans, there are far more drawbacks. 

Payday loans are high-interest and typically charge 20 percent for their initial fee. However, this 20 percent is not an annual percentage rate. In fact, the equivalent APR for this 20 percent initial fee is actually 480 percent APR. In comparison to other options, this is exorbitant. 

This interest structure often makes it difficult to get caught up, because payment is due as soon as you get paid. Since financial obligations and payments don’t change it is common for individuals to get still another loan just to pay bills and living expenses. 

According to Bank Rate Monitor Online, a Kentucky consumer recently borrowed $150 but paid more than $1,000 in fees over a six-month period without paying down the principal. In addition, a Wisconsin news article described a consumer who borrowed more than $1,200 from five payday lenders in her town and was paying $200 every two weeks just to cover the fees. 

The New York Times recently reported that at least 26 percent of military households have done business with high-cost lenders. A recent Navy survey found that most of the respondents who admitted to using payday loans were in pay grades E-4 to E-6, although the survey showed respondents in all pay grades from E-1 to O-6 had used a payday loan at least once in their career. 

What other options exist? Resources include consumer credit counseling services, debt counseling agencies, financial institutions, selling old items, or a visit to the Family Support Center. Even credit cards cost less. 

Consumer credit counseling or debt counseling services are resources through which payment plans and interest rate reductions can be set up with creditors. Normally, one payment is made to the agency and they pay off individual creditors. However, there is normally a monthly fee for this service. Resources to check an agency’s background include the Better Business Bureau, the Federal Trade Commission, and the local consumer protection agency, which falls under the North Dakota Attorney General’s Office. 

Applications for loans can also be made through legitimate financial institutions. This option takes into account your credit history, your ability to pay, and if there are any past-due payments or collection accounts. 

Although a credit card is often a more cost-effective method, keep in mind that juggling payments won’t work in the long run. If you can afford an additional payment, this may be an option. However, if it adds additional fees or you can’t afford more payments, this isn’t the way to go. 

Community readiness consultants can assist in assessing your current situation, your options and the pros and cons of each option. They can also assist with creating a workable spending plan and dealing with creditors and collection agencies. 

Before you run in and get a payday loan, consider the consequences and how long it will take to get back on track.