All of your money problems would be solved if you could just make more money, right? After all, that’s why you’re in college. To get a degree and a better job. But college often means borrowing. That student loan could be the beginning of a cycle of debt that’s hard to break out of.
What college doesn’t teach you is how to manage your cash flow and not get ripped off. Let’s look at how you can be a better money manager and avoid money problems.
The easy money rip-off
Lately, I’ve seen quite a few ads for companies that promise you fast cash even if you have bad credit. Just use keywords “fast cash” in Google and you’ll get a mess of links to sites where you can get a quick short-term loan.
As tempting as it might be to solve your money problems with a quick loan, keep in mind that you’re just putting off dealing with your problem. And you might be making it worse.
Types of fast loans
The loans that these services offer fall into certain categories:
- Payday loans: a short-term loan to tide you over until your next paycheck which will cover the loan. You have to have a bank account. The loan money will be deposited into your account and the repayment will be taken out on the payoff date.
- Car title loans: Your car must have a clear title. The lender becomes the lien holder listed on your car title. You can borrow up to $25,000 depending on the value of your car. If you don’t repay the loan, you will lose your car.
I checked out the rates charged by one company that has plastered the airwaves with their commercials. Here in California where I live I would have to pay a fee of $45 in order to get an online payday loan of $255. That means that I get fast cash of $255 (the maximum online loan) but I have to repay $300 within 14 days. That is an annual percentage rate of 460.08 percent interest!
I don’t know about you but this kind of rip-off drives me crazy. Here’s why.
What usually happens with a payday loan is that when it’s due a chunk of cash is taken out of your checking account. Even though you just got your paycheck, you still can’t cover all of your bills. So what do you do? You go back for another loan to tide you over until your next paycheck. Welcome to the cycle of debt.
The ugly truth
For more information check out Jenna Lee’s May 22, 2014, article for USNews.com, “The Truth About Payday, Pawnshop and Car Title Loans.”
According to Lee these fast cash loans don’t show up on your credit report but can still hurt your credit score. They suck up so much of your money in payments that you may fail to pay the things that do show up on your credit report.
When you need money, don’t panic. Take it slow and consider your options which include:
- A loan from your bank or credit union
- Ask for an extension or a payment plan on what you owe
- A payday advance from your employer
- A final resort could be to take a cash advance from your credit card.
“While not ideal, the 25 to 30 percent in interest you may be charged for a cash advance is certainly better than triple-digit interest via the loans covered earlier,” Lee said.
Help is on the way
If you’ve gotten yourself sunk down with debt there are free and low-cost services available. NerdWallet.com compiled a list of services in its article, “Don’t Get Caught: The Payday Loan Trap.” One service worth checking out is credit counseling.
The National Foundation for Credit Counseling can help you find a local Certified Consumer Credit Counselor who can help you with credit, budget, bankruptcy or housing counseling. Services are available online, by phone or in person in all 50 states and Puerto Rico.
Have you successfully dealt with money problems? Tell us your story in the comments.