The federal government has declared that payday lenders cannot be considered.
The U.S. Consumer Financial Protection Bureau announced new rules concerning payday loans on March 27th. This included a requirement for lenders of short term money to verify borrowers’ ability pay. Representatives in the industry claim that these rules would force many small outlets to close.
Payday lenders offer speed and convenience that is hard to resist for the moment. They can deliver cash to customers in exchange for a stamped and postdated check.
People in dire financial straits will panic and seek out payday lenders. Elaine Jones is Clarifi’s counseling manager. Clarifi offers counseling services in consumer credit to clients. It is located in Pennsylvania.
Financial counselors offer better options for payday loans to those who are willing and able to admit they need them according to the researched by OakParkFinancial
Alternatives for payday loans
These are some options to get quick cash infusions.
- In advance payment – Some employers will give a one time, non-interest advance on the next pay check in order to cover unexpected costs. Traditional funding sources include the personnel department or any other agency, but some employers have now contracted with financial wellness program providers. These programs offer financial counselling, a savings plan and a loan for an emergency. You may also be eligible to receive longer-term loans for appliance purchases. Contractor programs have the advantage that you don’t have to admit to having financial problems.
- Bank and credit union programs – Payday loans can be offered by credit unions and community banks. Credit unions offer short-term loans under a national program that is less than $1,000. Rates are limited to 28 per cent and there are no rollovers. Application fees are $20 or below. Joseph Radovanic from Webster Five Cents Savings Bank Massachusetts stated that the small loan program has helped customers avoid renting. The bank charges 12 percentage interest on unsecured personal loan, as opposed to the average rate at over 300 percent for payday lenders.
- Assistance for the community – If your emergency bill covers heating and lighting, you might be able to check with the utility or local social service agency to find out if there are programs that could help spread out the costs or even pay the entire amount. Jones indicated that some community clinics offer sliding-feet or free care if patients cannot afford upfront. However, doctors might be willing to take payments over time. Jones also recommended that cash-strapped households have access to non-profit organizations throughout the country. Look out for community service groups and churches that are linked to your area. Don’t forget to ask for referrals from credit counseling organizations. Jones stated that Jones was not alone in his belief that there are many resources.
Avoiding the Debt
Budget counselors recommend that emergency expenses be avoided. Many payday loan recipients claim that they were required to pay for vehicle repairs in order get to work. Jones suggested that maybe they could live without them for a while and save money on repairs. Jones replied, “Is public transportation readily available; could you ask for one?”
You may not need to pay for some expenses right away. Sandy Shore, spokesperson for NaviCore Solutions – an in-state nonprofit credit counsellor – spoke about the case study of a mother struggling to pay for her child’s school trip. “If this isn’t an emergency situation, you should reconsider your priorities,” she said. She admitted that it can be difficult for children to have a conversation about their financial realities. She said, however, that kids will likely learn valuable lessons form their parents.
Because one loan is not sufficient, payday loans can pose a financial threat. The U.S. Consumer Financial Protection Bureau found that nearly half of the payday loan users it studied took out 10 or more of the high-cost loans a year.
Higher interest rates are more indicative that recurring borrowing is not planned. Virginia Poverty Law Center’s Dana Wiggins stated that it is not a one time expense. They also provide financial assistance and a hotline. There are many reasons why someone may need more money every month.
If cash tightening is a problem that is ongoing, your household should cut back on income. Consumer credit counseling organizations provide free budgeting support as part their non-profit mission. It is possible to reduce household expenditures and create a cushion in case of an unexpected.
Jones from Clarifi stated the fact that many people have unexpected expenses that drain their savings. You don’t realize the amount of money you’re spending, regardless of whether it’s a telephone bill or cable bill.
Counselors agree that it is hard to reach out and get support from an employer or counselor. Many people treasure their independence and avoid seeking out help. Jones pointed out that there is pride involved. Jones added that there is pride in the process.
Shore was in agreement.
She said, “If you want embarrassment to be saved, then it might be better to have some embarrassment.” Embarrassment will be minor if the payday loans become a huge financial problem that consumes resources and becomes too burdensome. She said, “You’re going in collections anyway.”