You have an important bill to pay and not enough money to pay for it. A payday loan might be the solution to your problem – if you don't mind paying very high interest rates. It's not uncommon for payday loans to have APRs above 100%.
Is there a better alternative? We can think of at least nine.
1. Credit Cards – Credit cards are not a long-term answer for debt, but the interest rate is still considerably lower than the rates of payday loans. They may be a better choice for a short-term debt you can pay off relatively quickly. If you want more credit, check out our list of credit card offers.
2. Negotiation with the Lender – You might be negotiating from a greater position of strength than you think. Lenders may be willing to work with you to alter your payment plan, or even defer a payment if you've had a good credit history. If you're going to negotiate, do it quickly – once you start missing payments, your lender will be less sympathetic.
3. Personal Loans – Personal loans may be a better alternative for larger debts, assuming you have good enough credit to qualify. Interest rates will be near or above the rates of credit cards – usually between 10% and 32%, depending on your credit rating. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
4. Selling Items – Do you have any assets you don't use anymore? The answer to your temporary cash flow problem could be sitting in your attic or garage. Can you sell enough to cover your debt?
5. Borrowing on Life Insurance – If you have a whole life insurance policy, you can borrow from that and take as long as you like to pay it back – although death benefits will be reduced if you don't pay the loan back before you pass away.
6. Borrowing From a 401(k) – It's best not to borrow from your 401(k) plan, as you lose the compounding effect of that money – but at least you don't have to worry about qualifications, and the interest you pay goes back to your account. You must pay the loan back, including interest, within five years to avoid significant penalties.
7. Borrow from Family/Friends – This is a great way to borrow money under favorable terms. It's also a great way to alienate family members and lose friends. Make sure you agree on a repayment plan and on the consequences of not making payments. Put the terms in writing to avoid future disputes.
8. Payday Alternative Loan (PAL) – As the name suggests, PALs are small loans that federal credit unions offer to avoid payday loans. The loans are small ($200 to $1,000) and terms range from one to six months. Credit unions require membership, but there are many credit unions available with diverse membership requirements. Note that you must be a member for at least one month before you are eligible for a PAL.
9. Increase Your Income – Can you work overtime at your current job? Is a second job a possibility? Do you have a side gig or hobby you could grow into a suitable income source? If you can't bring in enough extra income in a short time to make a required payment, consider asking your current employer for an advance on your salary – just remember, your future check(s) will be lower until the advance is absorbed.
All of these steps are reasonable alternatives to payday loans, but none of them are pre-emptive. If you're in a position where you need a payday loan – especially more than once – consider credit counseling to help you establish a good budget and put your finances in order.
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