Payday is ten days away and the money from your last check is gone...what do you do? Economic hardship seems to be the buzz word for the day. More and more families are finding themselves struggling to make ends meet. Too often consumers are finding their bank accounts depleted and payday just a glimmer in the distant future. Many people have turned to innovative ways to fulfill their monthly obligations. Let's examine one of the ways people have discovered to try and keep the ship afloat in this time of stormy financial weather.
Most people have found themselves in this situation at one time or another. Maybe they are just starting out and do not have the earning potential they would like or they have experienced a life or relationship change that has added an extra burden to an already precarious situation. What does a person do to stretch their dollars farther in a time when prices are going up and wages are going down? Most people have been forced to cut something from their budgets in order to meet increased economic pressures. Some have been forced to take on second jobs. Many people have turned to taking Payday/Cash Advance Loans to close the financial gap in their pocket book.
What is a Payday/Cash Advance Loan? It is just what it sounds like. A person can go to a loan provider and take a loan out today against future earnings/wages. Sounds pretty good doesn't it? Don't be so quick to agree. It is not as simple as it sounds. Where does this money come from? My parents used to always say "Money doesn't grow on trees.", when I asked for something not in our budget. The same adage applies today as well. It's your money right? Wrong, it is money you have not actually earned yet. So even though you know in one to two weeks your check will show that you have earned a certain amount of dollars during that period, that money is not yours or accessible by you until you actually receive the check.
So you might be wondering, how do I get access to money I have not received? The next segment of our article will examine just how this happens.
Historically money lending has always come with a price attached. The Latin phrase quid pro quo (something for something) is applicable in this situation. You need money to get you through until the end of the month. Someone is willing to lend you the money you need today but at a price to paid back in addition to the original loan amount. Doesn't sound too bad does it? So let's discuss what it will cost you to borrow against your future earnings. When you put it that way it loses a little bit of the appeal it had before, I am going to pay for the use of money that I haven't even earned yet.
So what does it cost on average to receive a payday/cash advance loan? Finance charges on every $100 dollars loaned can range from $10 to as high as $25 in some cases. People often do not stop to do the math and figure out that they are being charged upwards of 10-25 percent for the use of money they will earn in the next 7-14 days. This would be classified as a short term loan with very high interest rate for such a short loan life. The financial ramifications behind this kind of service can be long term. The whole intent of the loan provider is to make money very quickly at the expense of their customers. To avoid having their clients skip out on paying the cash advance back the loan is set up in the form of a contract allowing the provider to collect their money before the check is dispersed to the employee. This ensures that the loan provider is able to continue to make loans to other clients and to bank away their profits on a very short term loan.
One of the biggest short term problems that face individuals that choose to take a cash advance to alleviate financial hardship in the current month is the fact that the hardship has not gone away. In fact if you were short of finances at the time you chose to take a cash advance, you will soon discover that you have even less cash to work with the following month. This eventually will place enough financial stress on the employer that they will find themselves deeper and deeper into debt. Eventually the person requesting the cash advance will find themselves needing to borrow more and more money each month in order to just meet their existing financial obligations.
This situation could be classified as being "financially overdrawn". The person finds themselves hopelessly caught in a revolving circle with no real way out as long as their earning capacity stays the same. The most disturbing part of this equation is that the company we engaged to help us through our financial crisis will continue to make money off our misfortune until the cycle can be broken.
One might ask how they can break the cycle of financial dependency. The first step is to evaluate your situation and make the commitment to live within your means. Stop immediately digging yourself deeper by continuing to take cash advances. It may be necessary to seek out professional consumer debt counseling. At a minimum a person will need to contact their creditors and make arrangements to modify their payment schedules. This may have a negative effect on your credit in the beginning but as time goes by and the payments are made on time your credit rating will recover.
Living within your means is paramount to break the cycle of dependency and debt. Eliminating things that are not immediately necessary for our shelter and sustenance should be reviewed. This may be a short term situation but the faster a person can dig themselves out of the monetary hazards the faster they can get back on track and work on removing themselves from debt. This could mean that luxuries we have come to accept as standard in our every day life may need to be let go temporarily. For example satellite television, satellite radio, gourmet coffees and drinks, automatic car washes, eating out every night, gym memberships are just a few things that when added up each month can really make a dent in our budget. There are alternatives that enable us to live the way we would like but allow us to save money.
Make a budget. Once you make it follow it. Your budget should include everything you purchase as well as your bills. Once your bills are listed and moneys allocated to meet your financial obligations look at what is left. If you plan to eat out during the month make sure this is included in your budget. Following a budget will help you gain that financial confidence that you can manage your money correctly and make it until the end of the month without running out of funds. When you live on a budget and follow it you are less likely to make impulsive purchases that can throw off your budget and cause you financial hardship later in the month. One way to avoid impulse buying is to teach yourself to never buy on the same day you shop. I always tell a salesman that I will not buy today because I am looking. That way you gain control of the situation and once you have stated you are not buying it puts you in the drivers seat. Ask questions, compare brands and once you feel educated enough leave. Sleep on it for a night and in the morning if it still seems like the right thing to do then go make the purchase but often after a night's sleep we discover that what we planned or wanted isn't necessarily what we needed.
Another possible solution is to improve your employment potential. Begin to look for a better job. If you lack certain skills or educational requirements explore the possibility of returning to school or enrolling in a vocational program to improve your skills. Often depending upon your individual situation financial aid is available or the county or state government will make the programs available to you in order to assist you in transitioning into a different income bracket. Many people might ask why the local city, county, or state government would be interested in assisting a person to increase their skills and earning potential. The answer is simple. The more earning potential a person has the more revenue they generate for the city, county, or state in the form of taxes and fees. This helps attract other people in higher income brackets because people have more expendable income to make improvements on their homes.
So in conclusion I think we have determined that although payday/cash advance loans are very attractive as a means to help us through a tough month or financial crisis. In the long run they are nothing but financial quick sand designed to trap the consumer in a vicious cycle of loans and fees that never end and eventually leave the consumer financially bankrupt and farther behind than they were in the beginning. There is hope that someone who has already fallen into the trap can extricate themselves from the monetary pitfall. It is not easy and it takes lots of work but it can be done. The sad thing is that many families have fallen into this trap and through their example in managing their own money they have perpetuated the same cycle in their children. Hopefully this article has been educational as well as a warning to avoid poor financial decisions when it comes to your money.
In these trying times it would be best to take a frugal approach to spending, spend wisely, look for bargains, is there an alternative to buying name brands (i.e. off brands, mark offs, or no name brands) that will achieve the same results. Set a little money aside each month as an emergency fund. You work hard for what you earn so you should pay yourself something for your efforts. Even if it is just $20 per week, soon that little nest egg will have grown and become a substantial financial safety net for you and your family when hard times hit. Just as an athlete will go into oxygen deprivation when they have over extended themselves on the field of play...we can put ourselves into fiscal deprivation where we find ourselves over extended with not enough money to meet all of our obligations. If we take the approach of one of our founding fathers, Benjamin Franklin; "A penny saved is a penny earned" the future will not look as bleak when economic trials hit. It is always good to remember we control our own destiny when it comes to financial success or economic ruin.