Payday Loans Should Be Avoided
In urban areas you see them on almost every other corner: check cashing storefronts. One service these businesses often offer is a payday loan service, with which someone in need of cash now can take out a loan on their anticipated paycheck, thus effectively being paid now for a paycheck yet to come.
Payday loans are typically high-interest, short-term loans and are most commonly taken advantage of by military personnel and others struggling to make ends meet. Payday lenders charge fees exceeding 15 to 30 percent of the loan principal, and if the loans are compounded, which they often are, borrowers are paying sky-high fees for a relatively small loan. In fact, in 2002, $4.3 billion in fees was paid by borrowers to receive payday loans totaling $25 billion.
(1) Limit the amount you borrow. Remember that every cent borrowed with your loan must be repaid, and with interest. To decide how large of a loan payment you will be able to afford after graduation, use the statistics from the Bureau of Labor Statistics to determine your expected average salary in your field. In addition, use a budgeting calculator to estimate your anticipated monthly expenses and compare this to your estimated salary. Will you be able to make ends meet with your anticipated loan repayment?
If you are strapped for cash, what are some other options? First, consider advances from your employer, borrow small amounts from family or friends, or take out a small loan from your credit union. If you are going with a credit solution, make the necessary comparisons so that you end up with the best deal. Finally, if creditors are clamoring for your payments, simply ask them for more time--you might be surprised at their answers.
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