many people, getting an extra $50-$100 they need on payday is one
of the reasons payday loans are so popular, said
the nonprofit Institute of Consumer Financial Education (ICFE),
a San Diego based consumer group helping consumers of all ages improve
their spending, increase their savings and using credit more wisely.
"Payday loans are
promoted as solutions for people with short-term money problems.
The average loan, about $200, are offered at an estimated 6,000
stores nationwide. Consumers who unwisely use one of these paycheck
advances, may find their short term money problems have become scary
financial money-go-round nightmares, playing out over many months
or a year., It is a fast way to dig yourself into serious debt.
Payday loans are NOT an effective solution to either short or long-term
money problems, advises the ICFE.
Here is how payday loans
work. The borrower writes a postdated check for the amount of the
loan plus a fee and, in return, gets the loan amount immediately
in cash. The lender agrees to wait until the borrower gets paid
to deposit his or her check. The loan may be convenient, for the
time being, but VERY expensive. As an example, to borrow $200 for
two weeks, could cost $38 or more, which might not sound like very
much, however it works out to an annual percentage rate of 500 percent,
the ICFE explains.
Moreover, bigger problems
begin when a borrower starts the dangerous cycle of living financially
from one payday loan to another. Recently it was reported a man
in Tennessee started "rolling over his payday loans and
wound up paying $1,614 to satisfy a $400 loan.
Before rushing into
a payday or any loan, be sure to check out all options. If you have
a credit card, it may be less expensive to charge an unexpected
expense. Another option is to ask for additional time from your
original lender. Many lenders will work with you if you contact
them sooner rather than later. If you are going to be late on a
car payment, for instance, contact the motor vehicle finance company.
If you are going to be late on your rent, discuss the situation
with your landlord, especially before seeking a payday loan.
In any loan agreement,
read the fine print. Be clear in your mind about what penalties
will be assessed if you can't make good on the loan. A payday loan
is a binding agreement and past due accounts are reported to credit
bureaus, which may negatively affect future credit. Additional loans
come with steep penalties, and if you get behind, you may wind up
paying as much or more in interest than the amount you borrowed.
If you are "rolling
over payday loans or having difficulty keeping up with your
creditors, visit the ICFE's Web site at www.financial-education-icfe.org
and click on "Mending Spending."
To receive the same information
by mail, please send a self addressed, 60 cent stamped envelope
PO Box 34070 San Diego
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.