There’s a strong reason we stress budgeting for everyone, but especially for individuals. Budgeting is the best way of knowing how much money you have to spend and how much you might have left over for things you need out of the ordinary or things you might want to buy or do.
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Unfortunately, too many people go about their business without a budget. They create too much debt because of their credit cards unnecessarily instead of saving some of it for an emergency. They spend their money without thinking on a lot of frivolous things. We understand; who doesn’t want nice things?
Then… something comes up that wasn’t planned. Maybe it’s a car repair. Maybe it’s not having enough money to pay rent or mortgage. Maybe your favorite musician is coming into town and the tickets are a bit expensive and you don’t have enough money on your credit card or in the bank to cover it.
Payday loan companies were created to help people fill that void. The premise behind them is that you go in and borrow any amount, and you pay it back in a week if possible. If not, they’ll extend you until you can pay them back.
Sounds good, doesn’t it? Well… it’s not…
There are multiple problems with payday loan companies.
The first is that the interest rates they can charge can be exorbitant. Some contracts will charge you upwards of 400% APR… some even larger if you’re borrowing relatively small amounts.
The second is that they’ll want your bank account information so they can automatically withdraw the money you owe them. Some companies have been known to withdraw the money sooner than you expect them to, which puts you in a bad situation. You can sue to get your money back… if you have the money to sue them.
The third is that you might not be able to sue them if you didn’t read the contract properly. Many contracts made you go through arbitration in another state other than your own. Imagine living in Minnesota and realizing after the fact that you have to file for arbitration in Florida because you missed that line in the contract.
Many payday loans have had either the state they’re in or the federal government crack down on their operations. New York state actually banned them, while other states allow them to stay open but mandate that they change the language in their contracts. The reality is that they’re basically unregulated; just because someone penalizes them doesn’t mean you’ll get your money back.
It’s better to stay away from payday loan companies than risk losing more money than you were expecting. The four ways of dealing with the lack of money are:
1. Borrow from friends or family;
2. Call your creditors and ask for a temporary deal;
3. Start budgeting or saving small bits of money for a rainy day;
4. Do without; this is for those things you don’t necessarily need but want.
All of these are better options than thinking about payday loans. Protect yourself and your money.
