Sometimes you need quick access to money. Unplanned expenses and financial hiccups pop up regularly. These scenarios can throw off your budget instantly and put you in a financial pickle. While payday loans might seem like a quick fix in a pinch, other, more affordable alternatives are available. Knowing your options ahead of time can prevent costly headaches down the road.
What Not to Do in a Financial Pinch
Facing large, unexpected expenses can quickly throw you into a panic. It can often feel like your options are limited, making a payday loan seem the ideal solution. Payday lenders cater to this exact scenario: waiting until you’re fiscally vulnerable.
It’s not just payday lenders, either. Quick-cash apps, instant online loans, and pawnbrokers all work in unison to fill this void. These organizations claim to provide quick, low-cost access to cash, but in return, borrowers typically face:
- Costly Fees: Payday lenders generally charge fees versus interest rates. This is because when costs are converted to interest rates, they are exorbitant, and few would ever agree to them.
- Short-Term Cycles: Payday loans are designed to hold you over until your next paycheck. While this might seem beneficial, it’s often difficult for borrowers to repay the entire amount, plus fees, in such a short time. Consequently, the loan rolls over, the lender adds more fees, and the borrower gets stuck in a vicious debt cycle that’s hard to escape.
Before you let panic dictate your finances, let’s explore various options to help solve your fiscal challenge without breaking the bank.
Alternatives to Payday Loans
The two areas that payday lenders cater toward are speed and convenience. When facing an unexpected financial setback, you need access to cash now. Luckily, there are many affordable alternatives available that won’t strain your budget for weeks or months to come.
A personal loan (commonly called a signature loan) is a short-term loan that provides you with a specific amount of cash to repay over a term that typically ranges between 12 to 36 months. You do have to apply with your financial institution for this loan, but approvals are quick and are often funded on the same day.
Personal loans offer a slew of perks when compared to payday loans:
- Dollar Amount: You can typically borrow more money through a personal loan – giving you greater flexibility in budgeting for and covering unplanned expenses.
- Interest Rates: The interest rates on personal loans are generally lower than even most traditional credit cards – making them one of the most affordable options.
- Flexible Terms: While payday loans are typically for only a few weeks, personal loans can extend from several months to a few years. Repaying the balance over time alleviates pressure on your current budget.
- Revolving Line of Credit: An easy way to think of a revolving line of credit is a cross between a personal loan and a credit card. You gain the perks of a personal loan (higher dollar amount, lower interest rates), but it functions very similarly to a credit card.
The lender approves you for a specific amount and can withdraw money as needed. Once repaid, you can borrow the funds again. You also only pay interest on the amount borrowed – not your approved amount. This makes it an ideal solution if you need more flexibility in your spending or want funds to be available should you need them down the road.
Credit cards are one of the most popular forms of payment today because of their convenience. When using a credit card to cover larger expenses that you cannot repay immediately, always opt for the card with the lowest interest rate possible.
Credit Card Cash Advance
Most credit cards today have a cash advance feature. This enables you to withdraw cash from your credit card via an ATM or a branch location. Cash advances can definitely fill the void in a pinch, but there are a few things to consider:
- Review Costs: Some credit cards charge costly fees or higher interest rates on cash advances. Always review the charges associated with an advance before withdrawing funds.
- Create a Plan: While some lenders do not charge fees or higher interest rates, it’s always wise to create a plan to repay a cash advance quickly.
Much like regular credit card purchases, cash advances are highly convenient. However, you only want to use this feature in emergencies. Irresponsible spending through cash advances can cause more harm than good to your finances.
Certificate of Deposit (CD)
A certificate of deposit (also called a Share Certificate) is an investment account where you lock your money for a specific term, for example, two years. If you withdraw your money early, you will typically incur a fee or forfeit a portion (or all) of the interest earned to date.
If you have a CD and need immediate cash, closing your account could be ideal. While you will incur a fee or forfeit some interest, it could be much less than the fees charged by payday lenders.
Pulling from your investment accounts is a quick solution if you’re facing a more significant financial setback. It’s recommended you speak to your financial advisor first to review potential downsides. Also, you’ll want to refrain from pulling from tax-advantaged retirement accounts unless necessary.
Family & Friends
Borrowing money from family members or friends can be a slippery slope. You never want to put someone close to you in a situation where your relationship could become jeopardized over money. If you do borrow funds in this manner, it’s advised that you write out an agreement and repayment plan and have both parties sign it. It’ll show you’re serious about repaying the debt and provides a legal guarantee for your family or friends.
Ask for Help
If you’re facing financial hardship, most lenders will work with you on a temporary plan. For example, lenders might allow you to skip a monthly loan payment, which could free up instant money to cover your unplanned expense.
However, you must contact your lender BEFORE your loan’s due date. This provides your lender with more flexibility in finding solutions and could prevent any negative marks on your credit report.
We’re Here to Help!
Unexpected expenses pop up all the time. It’s part of life. How you choose to deal with these setbacks can also have a significant impact on your finances. Our team is here to work with you one-on-one to find the right solution for you.
To speak with a team member, please stop by any of our convenient branch locations or call 1-800-531-8456 today.
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Each individual’s financial situation is unique. We encourage you to contact United Texas Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.