No one would give me credit. No credit card company would touch me, even though I had a steady job, no debt and a nice sum in savings account. So I had to go to a store, buy 8 chairs which cost me $225, and put it on store revolver, and pay it off over time—the kindly store clerk said to not pay it off until a year, so my “credit history” would be built up.
Things are no different. Credit is literally given to people who cannot afford it. So what has that to do with Payday loans? Simply this. You are well advised to use credit or borrowing very, very carefully specially if it comes at a high cost. Here are some tips on how to manage your borrowing cost.
1. Check your credit score. If it is low (under 680) find out why. Did you neglect to pay your bills on time? Do you have too much debt? Are you applying for too many credit lines and cards? All of this will depress your score and force you to pay more for your loans.
2. Get into a “Saving” vs. “Spending” habit. Watch those dollars, even ones and twos. If your savings rate is less than 10% of your income, you are heading for trouble.
3. Cancel all but the necessary credit cards. Credit cad companies will scare you by saying cancelling your card will negatively impact your score. It may, in the short run (3-6 months) but your score will be much more depressed if you carry too many cards. You see, each card comes with a limit. That limit is called “debt” even if not used. Having too many cards also tempts you to use them. And having that many cards means someone is checking your credit–each credit enquiry, other than by yourself, add a negative to your credit score.
4. Avoid bankruptcy like the plague. It is truly another dungeon that it takes you seven years of perfect behavior (longer in some states) to get out of it from reporting perspective. The only exception is if you have had a catastrophic event that has caused a debt pile-up, like a medical emergency, or uninsured damages to your home. Even then, with good financial counseling you may be able to avoid bankruptcy and work out payment terms with your creditors.
5. Value shop constantly, particularly if you are finding yourself or your loved ones getting deeper into debtg. That means, shop only when you must, not on a whim. Determine if you really need to spend for an item—particularly if means borrowing either on your credit card or home loan. And avoid paying huge markups for anything. American retailers are very smart when it comes to relieving you of your hard earned money but not giving you value for it. Here is what I mean. How much profit or mark up over cost do you think is reasonable on an item—10%, 25%?. Did you know that average store mark up “consumer non-durables”, i.e. department store goods like apparel, shoes, purses, leather goods etc. is 500%, yes 500%. So the handbag you are being charged $100 for? It only cost the store $20. During holidays, these mark ups can exceed 1000%. So when you shop because of a “sale”, think of this. An item marked up 1000%, and then marked down by 300% is still getting the retailer 700% mark up!! And it is coming out of your hard earned dollars.
6. Get a financial advisor, one who is fee based only, and not working for an institution like insurance company or stockbroker. He or she will give you stright advice and not get you to buy a product because of commissions he or she makes on it. Some cities even provide these advisors without a fee or subsidize their fees.
7. Prepare a realistic financial plan, may be with the help of the financial advisor. Stick to that plan. It is the only way you will achieve financial freedom from the debt dungeon.
8. Pay down your highest interest loans first. It is OK to borrow from your savings such as 401K, provided two conditions exist—you are strictly going on a financial diet and you are truly paying down high interest loans like Payday or credit card debt.
9. Avoid the temptation of running up to these so called “advance pay” stores with your paycheck—they charge upwards of 200% annual interest, only you do not see it because it is apportioned to a pay period. Instead, cut out all unnecessary expenditure. These “juice” loans will ruin you, because they are addictive.