Avoid Debt Problems by Knowing How to Use Your Cash Advance Loan
Have you been reading lately about the downside of getting a cash advance loan? Maybe you know someone who got deeply into debt because they kept taking out payday loans to help pay off their last payday loan?
It’s true. If misused, quick cash loans can be a source of serious financial trouble. That’s all the more reason to educate yourself on how cash advance loans work, because if used correctly, these loans can be valuable financial tools.
Use Your Loan Responsibly
The first rule to remember is that this is a loan. You will sign a contract and will be legally required to repay the loan. When you apply for the loan, keep that fact in mind, and don’t borrow more than you need. When you receive the money, spend it on its intended use––medical bills, home insurance payment, car repairs––whatever your cash emergency is. But don’t use it for a shopping spree. Your money will be gone and your bills will still be there. If you don’t have the financial discipline to do this, don’t get a paycheck advance loan. It would be better for you to work out payment systems with whomever you owe.
If you receive a loan, you must be prepared to pay it back. The best way to do this is to arrange an automatic withdrawal on your next payday. You’ll be sure the money is there, and you won’t have a chance to spend it before your loan payment is made. If you can’t set up an automatic withdrawal, you’ll be asked to either write a post-dated check that will be cashed on your next payday, or be required to return to the lender to pay off your debt on its due date. Don’t neglect to do this. Making late payments, or no payments, on your paycheck advance loan will get you into deeper debt.
Understand the Math
As mentioned elsewhere, the guarantee you put up for a payday loan is your job and your bank account. This gives the company the assurance it needs to lend you the money. Just remember: the money you borrow will automatically be withdrawn from your bank account after a certain length of time. This is unavoidable.
You get a loan for $200.00 to be paid off in two weeks. Your lender is charging you a rate of interest at 250%, which they include in your loan as a flat fee. So now your payback amount is $250.00. If you fail to pay the loan back on time, your lender will charge you a $35 late fee. If the check you wrote doesn’t clear because you don’t have enough money in your account, you’ll also be charged a $30 insufficient funds fee from the lender and a $20 overdraft fee from the bank. Plus, your interest on the loan keeps accumulating. So, your original loan for $200.00 is now $335.00 and growing.
That is how people get into trouble with payday loans.
Practice Financial Discipline
To avoid that trap, take an honest look at your budget and your spending habits. If you find yourself perpetually short of cash, try to cut out unnecessary expenses, or possibly get a part time job to help out your finances. Paycheck advance loans are not intended to be long-term solutions for ongoing financial problems. If you feel you have bigger debt problems, it would be smart to seek the advice of a financial counselor. If, however, your finances are sound, but you have an unexpected expense that you need help with, than a quick cash loan just might be the financial tool you need.