If you don't know the word "payday" or its variations, think you are lucky. At least financially.
The term "payday" is euphemism. Let us first define the true meaning of it.
Payday loans are a form of short-term loans that do not provide collateral to people with little or no liquidity or poor credit ratings. Payday is a general term. Companies using this form of lending also use other names such as cash and cash, prepayments, loans and cash carry-overs. Sometimes these are also called accommodation loans or instant cash.
Regardless of the name used, there is a statistic to show how popular they are in the United States in just a few years [probably the last decade]. In the payday business, there are approximately 22,000 companies that have issued $40 billion in loans and charged $6 billion in interest and fees. As more and more companies are online, the numbers may be outdated.
Reasons for the popularity of paydays
The reasons are as follows:
- As a business model, it has proven to be resilient and profitable. Diversified portfolios, smaller exposures, short-term nature of loans, and areas that cater to traditional lenders.
- With Americans, incomes cannot keep up with inflation, and illegal immigration increases. As more and more people live between salaries and salaries, the demand for payday loans is growing. .
- Although there are provisions for payday practices at the state level, this form of loan is highly unregulated and has not been subject to any actual form of inspection by the federal government. State supervision is uneven. So, no wonder the new payday type of credit is everywhere.
- Due to the low number of loans and the lack of supervision, barriers to entry are low.
Pros and cons
- Easy to use, unsecured
- Bad credit history is not an obstacle
- Very local
- Meet a portion of the population with no other options to meet their spending or budget needs
- High interest rates [although many states have usury laws, payday lenders evade interest rates by calling these “fees” or “service fees”
- Addictive. Since funds are readily available, there is less incentive to save and abandon certain expenses.
- Will not improve the credit history of borrowers – and obtaining credit from traditional sources [even stores] and regular repayments will actually improve your credit rating and provide other opportunities for borrowing
Ways to avoid paydays
- Develop the habit of budgeting income and spending budgets, and do it cautiously. This will help you manage your cash flow and make it predictable – so you can find ways to increase your income or reduce your expenses. It will also help you prioritize the cost
- Seriously write down your expenses
- Try to set an internal limit on when to use a credit card. I recommend that someone not use a credit card to pay a single transaction fee of less than $25. It was amazing that she realized that money flowed through her hands so quickly. She never appreciates this when swiping a credit card and making a minimum payment.
- Repay all or most of your credit card balance each month. A credit card company is just a slightly softer version of a payday lender.
- I prefer to borrow money from friends or family, even though I realize that this is not always possible.
- Before the bankruptcy, payday is considered the absolute last resort. This will help you strengthen your determination and avoid them as much as possible.
- Get credit counseling. Just as people who want to lose weight must seek professional help, if you can't balance the checkbook, you need to consult a professional financial advisor.
- See if you have assets that can be monetized. It may be jewelry that you don't use, or a house whose house price exceeds your ability to withstand. This is an absolute first step in fixing your financial situation.