Payday loans: Are they for you?

[cashlenders]

Pros and cons of cash advances
By Natalie Zimmermann
Tuesday, July 22, 2008 at 4:15 p.m.

MARQUETTE -- For some people, it may seem like the perfect solution: Take your pay stub into a cash advance institution and come out with enough money to cover your bills. With record gas prices, rising utility costs, and skyrocketing food prices, more people than ever are struggling to make ends meet.


Is a payday loan the right answer for someone who is already struggling financially? Most financial experts would say no.


Though payday advances are convenient, most companies also charge fees that often put credit card rates to shame. According to Stuart Baker, a financial consultant with GreenPath Debt Solutions of Marquette, calculating the fees assessed by a cash advance organization often amounts to interest rates of nearly 400%. On top of that, people also run the risk of taking out more than they can afford to pay back after their two-week grace period is up, so they end up resigning the loan and paying even more in penalties.


Most payday loan companies don't run credit checks, which is why they often appeal to those who can't get a loan through a conventional financial institution. This is not the only option for people with low or no credit, however. Baker suggests that, before you consider a payday loan, you talk to your bank or creditors about making other arrangements if there's a bill you know you're not going to be able to pay.


"There are situations where they may just allow you to pay the interest on the payment instead of the whole payment and that might make something a little more affordable," said Baker.


It's also a good idea to come up with a budget and prioritize what bills need to be paid first. Though not the most advisable course of action, Baker said that even a missed payment might charge less in late fees than a cash advance would cost. It's also important to figure out what your monthly expenses are and where you can make cuts in non-essential items so that you can put money aside for emergency situations.


As always, if you have questions, consult your financial advisor.