Payday Loans: Money Merry-Go-Round
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"Payday Loans: Money Merry-Go-Round 
For Low-income Consumers"

Steps to take to get off the money merry-go-round

RELEASE: June 2001
CONTACT: Paul S. Richard, ICFE Executive Director

San Diego, CA. 'For many workers, a cracked tooth will just have to ache. To others, it sounds like $100-$150 for the dentist they don't have and this is one of the reasons 'Hold-A-Check' and other 'payday loans' are so popular,' says the nonprofit Institute of Consumer Financial Education (ICFE), a San Diego based group helping consumers become better spenders, regular savers and wise users of credit.

'Payday loans are advertised as solutions for short-term money problems,' said Richard, who added, 'Most consumers would be better off to avoid, these loans all together. Payday loans are offered at an estimated 5,000 to 6,000 storefronts nationwide and the average loan is about $200,' Richard said. To obtain a payday loan, the borrower either writes a postdated check for the amount of the loan plus a fee and, in return, gets the loan amount immediately in cash or assigns their pay checks to the lender via electronic funds transfers.

'Payday loans, also known as cash advances, check loans, hold-a-check and payroll advance loans. They may be convenient, but they are VERY expensive. To borrow $200 for two weeks, you could be charged $36 or more, and while $36 might not sound like very much, it works out to an annual percentage rate of over 400 percent. The money merry-go-round starts when the borrower begins advancing from one payday loan to another,' Richard explained.

If you are on a money merry-go-round with payday loans, here are some steps to take to get off:

  1. Scrutinize everyday spending, gather receipts, look for dangerous trends of regular convenience purchases and look for ways to achieve additional spending value of your dollars. A good target is 10-20 percent

  2. Set aside the savings you accumulate until you have enough to satisfy the payday loans.

  3. Establish a written plan for your income and outgo.

  4. Either begin or take greater advantage of household and grocery item coupons because about 30 cents of every take home dollars go to this area.

Before rushing into a payday loan, be sure to check out your other options. If you have a credit card, it may be less expensive to charge the unexpected expense. Another option is to ask for additional time from your other lenders. Many lenders will work with you if you contact them sooner rather than later.

The ICFE's Web site at http://www.financial-education-icfe.org has many helpful spending tips and worksheets for setting up a one-page spending plan and more.

To receive the same information by mail, please send $1 and a self-addressed, 55 cent stamped envelope to: ICFE Spending-Plans
PO Box 34070
San Diego, CA 92163

Note: Individual(s) available in San Diego for interviews on their experience with payday loans, including copies of agreements/contract.

About the ICFE:

The Institute of Consumer Financial Education (ICFE), founded in 1982 by the late Loren Dunton - creator of the "certified financial planner” (CFP) designation - is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. The years between 1984 and 2000, the ICFE was also known as the National Center for Financial Education (NCFE).

The ICFE is a nonprofit consumer education organization that has helped millions of people through its education programs and Resources. Over one million "Credit / Debit Card Warning Labels” and "Credit / Debit Card Sleeves” are in circulation world wide.

The ICFE's on-line help for consumers who spend too much was featured in PARADE Magazine (June 9th, 2002) in the Intelligence Report section. The money helps and tips are from the "Money Instruction Book," a course in personal finance, which was completely revised and updated in 2002 and is positioned to become among the premier programs in the new bankruptcy and debtor education initiatives.

The ICFE's "Do-It-Yourself Credit File Correction Guide," now in its Twelfth Printing, is in use by thousands of consumer credit and debt counselors in addition to tens of thousands of consumers. It received a "buy” rating in July, August and November from nationally syndicated financial columnist, Humberto Cruz in his column, "The Savings Game". BottomLine Personal newsletter gave the Guide a "Send For” rating in September 2001. The ICFE and our do-it-yourself approach to credit file correction was featured on NBC Nightly News on 04-30-02. The Spanish edition of the Guide premiered in January 2002. Syndicated columnist, Robert Heady also gave the ICFE Guide a "buy” rating.

The ICFE Web site at: www.financial-education-icfe.org helps consumers with mending spending, learn about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also access financial education courses and videos and how to teach children about money. Other ICFE services include a free eNews, and an on-line resource center of financial education learning tools, including videos, books and personal finance courses.

Consumers may learn more on the Internet about the "Do-It-Yourself Credit File Correction Guide" here, or fill out our request form, indicating your areas of interest.

For more information contact Paul S. Richard ICFE Executive Director at 619-239-1401.

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