Unexpected expenses are bound to pop-up from time to time. If you’re living paycheck to paycheck, you may find it extremely stressful. This is especially true when your expenses exceed your income and you need to pay for necessities like rent or your mortgage, food, medical care, car repairs, etc.
When you need money fast, you may think about taking out a payday loan as a quick fix. However, this is probably one of the worst decisions you could make.
In all honesty, payday loans are not designed to help provide you with the money you need quickly although they are advertised for that purpose. They’re actually designed to lock you into a short-term loan with an extremely high interest rate. So, while you are provided with temporary financial relief, you’ll need to spend significantly more money to pay back the loan.
Payday loans tend to have outrageously high APRs around 400%. Taking out a payday loan often pushes you into a terrible cycle of using these types of loans to bail yourself out of bad financial situations.
When you take out a loan and receive your paycheck a week later, you have to make high payments on the loan and cover your other normal expenses. Too often, borrowers fall behind again on their regular expenses because they are stuck paying down a high interest loan.
As a result, you still end up needing financial help. Your best bet is to avoid taking out a payday loan at all costs. Here are 4 alternative options you can consider.
1. Build Up Your Emergency Fund
Your emergency fund is often the first line of defense when you’re faced with an unexpected expense.
Like I said earlier, unexpected expenses are bound to pop-up. Since you know this, it’s best to start preparing beforehand. If you need money fast for an emergency, you should refer to the savings you have stashed away.
If you don’t have anything saved up, start building your emergency fund ASAP. A good start is to save up 1-3 months worth of expenses.
Set up automatic transfers each month to reach this savings level. Even if you have debt, you should still prioritize your emergency fund because not having one could put you into even more debt.
Even if you can only set aside $25 each paycheck, that money will come in handy when you need it.
2. Delay the Purchase If Possible
See if you can delay making the purchase in question until you get paid. I know this won’t be the case all the time, but if may work out in some circumstances.
For example, if your payday is just one week away, see if you can move around the due date for some expenses. You might even call your creditors to see if they’ll allow you to pay late.
If your car needs repairs, see if you can carpool with a coworker temporarily, or take public transportation until you can round up the money to get it fixed.
The results of doing this may be varied, but it’s worth a try. If others are willing to work with you and accept late payments, you can avoid taking out an expensive payday loan.Payday loans should be avoided at all costs. Here are some alternatives to consider instead! Click To Tweet
3. Make Some Extra Money
Another thing you can do to avoid taking out a payday loan is find a way to make some extra money fast. Increasing your income is a great way to eliminate your need for a loan. Extra money can improve other areas of your finances as well.
Most people are side hustling these days, but if you need money fast you need to focus on tasks that will provide you with quick cash. You can always sell some items you no longer want or need, babysit, walk dogs, do freelance work on Fiverr, take surveys online with Opinion Outpost or Survey Junkie, or do some yard work in your neighborhood.
Signing up to drive with Uber is also a great idea to make money quickly. You can get paid every week.
4. Consider a Low-Interest Credit Card
Finally, as a last resort you can consider using a 0% interest or low-interest credit card. This is only a good idea if the expense is truly an emergency and you have no other option.
I’m not big on encouraging people to get into debt with credit cards, but when compared to a high-interest payday loan, credit cards are a much worthier option.
Some credit cards provide a 0% introductory APR for a lengthy period (up to 21 months for some cards) while others may offer a lower interest rate if your credit is good. Typically, credit cards come with an APR ranging from 12% – 30%. This is much lower than what payday loans offer, meaning you won’t spend nearly as much money.
If you do choose to use a credit card, you must have a solid plan for paying off the purchase.
Other things you can do include lowering some of your other expenses, or even asking a close family member to borrow the money you need. These options may not be on the top of your list. But, when you aren’t prepared for unexpected expenses, you put yourself at risk and eliminate most of your options.
The best thing you can do is focus on preparing your finances ahead of time. Try to boost your emergency fund and even establish a checking account buffer. Make saving a habit so you won’t ever have to consider a taking out a payday loan.
Have you ever had to take out a payday loan? How are you avoiding the option of having to take one out in the future?