The “payday loan” business has its roots as far back as the turn of the 20th century. Back then, they were called “salary buyers” and they would advance their “customer” the money from their pay check for a fee. The problem was that fee was exorbitant. So if the customer came to them to “sell” their salary of $750, they would give the customer $600 and keep the rest.
In truth, the very term “loan shark” was coined around this practice of stalking desperate people who need money quickly and then taking an unfair cut of their salary for the “fee”. Today they can be found on many of our city streets – stores that advertise that they will cash your payroll check right now. The logical question is: why would someone who needs every dollar they have, use such a service?
Part of it comes from the inability or unwillingness of less well-off or lower income people to use conventional banking services. Instead, these people often live one step beyond “hand to mouth” and they immediately convert their pay to cash so they can use it without the overhead a bank introduces. Why not open banking account like everyone else? The reasons may include:
– A “problem” with the source of funds (i.e. funds derived from an illegal means.
– A desire to stay out of the “mainstream” due to difficulties with the law.
– A deep distrust of financial institutions.
– Some people like to “see their money”. When money goes into a bank, you never see more than a number on a page. However, cashing a paycheck and seeing a large stack of physical bills may give off a feeling of prosperity.
– A dislike of the various fees banks charge.
This last idea is truly incomprehensible because the fees a pay day lender charges to cash a check are far more than anything any bank could legally charge. The best way to avoid pitfalls like pay day lenders and their predatory practices is to focus on education and awareness.
First of all, you should sit down and study what you are paying for those “payday cash services”. If math is not your strong suit, have someone you trust explain to you how much they are charging. When you discover that pay day services are charging at least 20-40% of your pay, you will understand why they are often called loan sharks.
Next, go and talk with someone at your local bank. Banking personnel are usually very friendly and they can set up a bank account for you at a fraction of the price that a payday lender was charging.
As you hopefully begin to save some money, deposit it into the bank and make sure you monitor your balance. Try to save a little more each month to build up a balance. Even five dollars a month is a good start.
Get out of debt. If you have credit cards and are carrying balances, you are likely paying these creditors 20% or more in interest. This is almost as bad as the payday lenders and should be avoided. You need to pay off these credit card balances as soon as possible. The Debt Reduction Group can help you to pay them off at a discount to the balance owing.
Once you are debt free, you can begin building new credit. Start small with one small credit card, store card, or gas card. As you charge on it and pay off the balance each month, your credit will begin to improve.
It may be difficult at first to stop relying on payday lenders. However, the feeling you have when your money is being well managed and the funds you will save, make it worth it.… Read More →