Trinity Credit - November 2011 

Article Title: Avoiding Payday Loans During the Holidays

Obtaining a payday loan may seem appealing around this time of year when additional money for gifts and traveling is needed.  The process is simple enough.  A borrower writes a personal check for the loan amount and walks out with cash. While payday loans may seem like the answer to a holiday budget crunch, they usually end up causing financial problems and are often the beginning of an expensive cycle that can seem almost impossible to escape.

Once you get caught in the trap of payday loans, it can be difficult to get out.  Here’s how it happens:  You pay the original loan amount and take out an additional loan for 10 to 14 days.  After the second loan is due, you write another postdated check and obtain another loan.  Now, every two weeks you find yourself needing an additional loan—it’s an endless cycle of debt.  For instance, the typical payday loan customer pays $840 yearly in fees on a $200 loan. That’s in addition to the original loan amount.

If you’re struggling with your holiday budget, don’t obtain a payday loan to get you through.  Payday loans only provide a temporary solution to an even bigger cash flow problem.   If you’re having a budget problem and don’t have an extra $300 now, it’s unlikely you will have an extra $300 when your next payday comes.  In short, proper budgeting is the solution to avoiding the need for another payday loan.

Here are a few alternatives to consider before obtaining a payday loan:

Create a Holiday Budget. Set a spending limit to keep you from overspending.  Be disciplined and don’t go over your budget—no matter what.

Prioritize your Holiday Plans. Rather than traveling, you might consider staying home for the holidays.  Another option would be to spend less on gifts or only buy a few expensive gifts and avoid all other spending.  What’s given up on travel expenses could help create more money for gifts.

Ignore Sales Hype.  Those “Buy 2, Get 1 Half Off” deals only trick you into buying more than you would otherwise.  Buy only items that are on your holiday spending list and avoid unnecessary spending.

Shop Online. The internet makes it easy to shop around.  Since most retailers have inventory on their websites, you can decide exactly what you want to buy and shop around for the best prices.

Consider a small loan from your credit union. Credit unions offer short-term loans for small amounts at competitive rates. Ask about a small personal loan to help you through the holidays and to avoid additional payday loan costs.

For more information about the costs of payday loans read the report issued by the Center for Responsible Lending.  The report describes the fees and interest rates charged by payday lenders.

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Tip of the Month

See the Federal Trade Commission about the costs of payday loans.  Military consumers can contact the Department of Defense, toll-free 24 hours a day, 7 days a week, at 1-800-342-9647, or for information about alternatives to payday loans.

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