Payday Loans: Risks and Rewards

By: Dror Klar

For those of us who have to live almost paycheck to paycheck, payday loans can be a great help when we get into a bind or have a financial emergency. A tire can blow out on your car, a bad tooth needs to be taken out, or it could be something as huge as having to pay a house payment before your home is foreclosed on.

The fact is, when money gets tight, many of us are tempted to use payday loans and cash advances as an ongoing solution to our financial problems. This is a very bad practice to get into; the last thing you want to do is become dependent on payday loans and cash advances. They will become a crutch and prevent you from learning how to solve your money problems without them. Use them as little as possible and as responsibly as possible.

The first major rule of payday loans is to use them only when you really, really need to. Never use them as a way to purchase something that you do not need, like a new dress or a surround sound speaker system for your home. In theory, you can use payday loans whenever you want to, as long as you can pay them back on time, but once you start using them for things that are not necessary, you will be doing it all the time, because it will give you a false sense of security. Save cash for things that you want, but do not need to survive and leave the payday loans for emergencies only.

Consider the fees and interest associated with payday loans and cash advances. Every time you get a loan, whether it is a loan from the bank, your credit card, or a payday loan office, it will either have a flat fee or interest attached to it. This is how they make money by allowing you to borrow money from them. They give you a certain amount of money, you give them more money back. This is how commercial loans have worked for centuries; even relatives and friends will charge interest sometimes.

If you have a credit card and you find yourself with plenty of assets in the bank, but no cash, try using your credit card's cash advance feature, if it has one. This can be of great use to you even if you do not have plenty of assets in the bank, such as when dealing with a service that will only take cash.

Payday loans can be used when you need money quickly and are a wonderful convenience, but please use them responsibly.

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