Sunday, June 17, 2007

It’s an all too typical scenario.

Consumers find themselves strapped for cash, so they take out a cash advance to cover the bills. Then comes time to pay the loan, and they have to borrow more money to meet their obligation. The problem is, these loans are not being provided by their banks, they’re being provided by predatory payday lenders. And it’s not the money that’s being borrowed that is causing the financial strain, it’s the interest rates, some as high as 400%.

That translates to $2,000 in yearly interest on a $500 faxless payday loan, amounting to over $150 in interest each month.

According to the Center for Responsible Lending, there are over 22,000 payday advance loan lenders operating in the U.S; costing American consumers over $4.2 billion each year in fees. Ninety-nine percent of payday loans go to repeat borrowers, proving that this dangerous financial practice quickly becomes a vicious cycle that sets consumers sinking into financial quicksand.

“Consumers who borrow from a payday lender are putting themselves at a huge financial risk,” says Ann Estes, Vice President of Client Education and Counseling Delivery for ClearPoint Credit Counseling Solutions. “It’s a revolving door of high-interest rates and repeated borrowing that leaves many consumers unable to keep up. They are not borrowing from Peter to pay Paul, they’re borrowing from Paul to pay Paul. This practice is an indicator of a larger financial problem that needs to be addressed.”

Consumers often turn to no fax cash loan lenders because there is a shortage of cash flow, and they need help until the next paycheck arrives. But consumers who are struggling to make ends meet have many other options to consider before knocking on a payday lender’s door.

“There are so many other avenues to consider that there is no reason to use a payday lender,” Estes suggests. “Financial counseling is a great place to start, and there are many no-cost tools and strategies available to consumers to help get them back on track.”

ClearPoint Financial suggests the following tips to help consumers get out of this debt trap.

• Objectively assess your current situation. Consumers who are consistently visiting payday lenders for cash advances need to take a look at their current financial situation and determine why they are constantly behind on their bills.

Ask yourself these four questions: What are my financial obligations each month? Where am I falling behind? Are my monthly expenses too high? What costs can I eliminate to help myself out financially? By knowing and understanding your full financial picture, you can determine how you can make changes to positively affect your financial outlook and eliminate the need for relying on payday loans.

• Identify bad habits. It’s not always just plain bad luck that keeps consumers behind financially. Sometimes it’s the bad habits that keep us behind the financial 8-ball. Overspending, compulsive shopping, poor budgeting and even gambling are all triggers to debt accumulation.

• Create a budget. A personal budget is a consumer’s financial air supply. Without it, it’s very difficult to keep track of expenses, monitor spending and determine the best way to allocate monthly income. Living a haphazard financial lifestyle is what gets many consumers into trouble and forces them to apply for fast payday loans. Creating a budget doesn’t have to be difficult - start by documenting regular monthly expenses such as rent/mortgage, utility bills, car payments, etc.

Other items to track include credit card payments, grocery bills, and monthly savings. Once you’ve determined what monthly expenses do not change, you can then figure out how much you can afford for those that do fluctuate, such as groceries, gas and clothing.

• Contact your creditors. If you are behind on credit card payments, or even mortgage, rent or car payments, contact your creditors to inform them of your situation. Many will offer contingencies until you get back on your feet. By alerting them of financial hardship, you can possibly avoid missed or late payments.

• Consider obtaining additional income. For some consumers, identifying debt warning signs and creating a budget will only go so far. They simply need additional income to help make ends meet, even if just temporarily. Consider a second, part-time job for help with credit card bills, monthly expenses, or even to help boost savings. While it may require extra discipline, and maybe a little less sleep, it’s far more beneficial than taking out an expensive bad credit payday loan.

This entry was posted on Sunday, June 17th, 2007 at 12:22 pm and is filed under National.