Sometimes, we get into serious financial binds. Bills are due and you don’t have the money, or there’s an emergency and you need cash immediately to deal with it. You could be under threat of being evicted or foreclosed on. Life sometimes hits all at once and we might be tempted to turn to the easiest source of cash: payday loans. Payday loans are bad for your finances. Here are some payday loan alternatives.
Of course, most people know how bad payday loans are. They charge astronomical interest rates and demand payment (plus interest, plus fees) quickly. Many payday lenders don’t even do a credit check: they verify your employment and that’s all they need to give you the cash. Payday loans are targeted at the most vulnerable who are expected to pay dearly for their situation.
But there are better ways to get cash than payday loans, even if you have bad credit. Here are some good payday loan alternatives.
Best Payday Loan Alternatives
Please read the below details for your attention:
Peer to Peer Lending
Peer to peer lending is a relatively new trend which was kickstarted by organizations looking to figure out how to provide funding for small businesses that cannot otherwise get funds. The way it works is that individuals put up money for others to borrow, then those funds are pooled and lent out to those who need the funds. They then pay the loan back, with interest, and the individual who lent the money gets their money back along with a percentage of the interest accrued.
Companies such as Peerform and Lending Club offer peer-to-peer loans for those who need them for a variety of purposes. They could be a good alternative to payday loans. However, your credit score will still affect the kinds of loans you can get. Interest rates tend to be high.
Credit Card Cash Advance
If you have a usable credit card, you can get a cash advance by going to an ATM and using your credit card to withdraw money.
Interest rates are slightly higher on credit card cash advances than on regular credit card purchases, and these cash advances may also have other fees associated with them. However, this is far cheaper than a payday loan. Interest rates range from 15-30%, depending on the card.
Personal Loan from a Credit Union
Large banks offer personal loans to those who qualify, but did you know that credit unions can sometimes have better interest rates and lower requirements? Many credit unions make a large amount of revenue from personal loans and will promote them heavily. You can even get special deals on personal loans if you ask!
Interest rates are lower than credit card cash advances, and personal loans may not be available to those with no credit history.
Help from Family/Friends
This might be difficult, and it’s a last resort for many, but if you’re truly in a financial bind, try calling in a favor. You might be able to get the relief you need with some help from friends or family.
Of course, don’t overuse these favors and don’t take them for granted. Other people have money problems as well, and if you don’t pay them back, it could cause problems down the road.
If you’re at the end of your rope, there are still better ways to come up with cash than a payday loan. If you owe utilities, try negotiating with the utilities company to see if you can pay your bills on a payment plan. If you owe rent, ask your landlord if you could pay at a later date.
You may also be able to refinance, consolidate, or negotiate payment plans on debts you owe. For many people, student loan refinancing is a popular way to pay less per month on student loans. If you can’t do that, try and negotiate a forbearance on outstanding loans.
Do your best to avoid turning to payday loans. In many cases, it’s better to take the hit to your credit score than to get trapped in a debt spiral with payday loans.
Beginner’s Guide on How To Save Money
It may seem hard to justify saving money when you have a low income and high amounts of debt. But there are plenty of good reasons to have a growing savings account, even if you’re putting most of your excess cash into debt repayment.
You Need A Rainy Day Fund
Life happens. Your car breaks down. Your dishwasher ends up needing replacement. You have a medical emergency. A close family member passes away and you need to help cover funeral costs. These things happen to everyone and it would be silly not to plan for them.
We recommend having around $3,000 saved in case of emergency. This money would not be touched at all, and only used if you’re in a situation that you cannot pay for with your job income.
You Want To Have Runway
Runway is a term used to describe the amount of time someone can be without income before they have to resort to taking out debt.
We recommend building up your runway to the point where you have a full year’s worth of expenses saved up.
Once you have 12 months of expenses saved up, you’re much more free to take risks such as going back to school, switching to a higher paying (or more fulfilling) career, starting a business, or investing in real estate.
You might think that it will take years for you to save up this amount of money, and that’s true. But we recommend saving up for this anyway, even if you have debt to pay back.
We’re also going to talk about how you can cut down expenses in such a way that makes this goal a much more manageable one. It’s a lot easier to save $24,000 than $36,000, for example.
How To Save Money
Here are the easy ways to save money:
Look at your income and expenses.
Take a look at all usable sources of income. Only include what you can consider to be income. This includes:
- Your job income (W-2)
- Pensions, military benefits
- Side hustle income
- Business income
- Investment income that isn’t being reinvested
If you have unpredictable income (for example, if you’re a freelancer or business owner), you will need to take an average of the last 3-6 months and do budgeting quarterly. The result is that you end up saving money every quarter, piling it up in advance.
Break your expenses down.
Categorize each of your expenses based on what they’re for. Your biggest expenses are likely your rent/mortgage, transportation costs, and debt repayment.
Here are some expense categories you can use:
- Groceries and necessities
- Entertainment (include takeout and restaurants here)
- Childcare & children’s activities
- Other expenses
How you categorize your expenses is up to you. Then, you need to take an honest look at your spending. Look at your bank and credit card statements and get the real numbers! Don’t estimate. We recommend using a tool such as YNAB or Mint in order to track how you actually spend your money.
You may notice that we excluded debt repayment. For debt repayment, we recommend snowballing your debt and paying low amounts on the rest of the debt. You’ll need to use a calculator to figure out how much you’re paying every month using this strategy. Learn more about snowballing your debt!
Decide which expenses are the most important.
Take some time to think about this, because even though you want to have all of the benefits of what you currently pay for, not all of them are worth keeping.
For example, you might have an unlimited data plan when your data usage (which you can check on your phone) indicates that you only need a few GB.
Rank your expenses from most to least important. The least important ones will eventually be cut out to support your savings goals!
Cut out any expenses deemed unnecessary.
You decide how you live your life, and you need to choose which expenses you can live without in order to achieve your financial goals.
For example, you might be spending less on groceries and more on takeout. This might seem like it’s saving you time, but it’s actually costing you a fair bit. However, this may not be an unnecessary expense if you find yourself unable to cook your own meals.
Subscriptions are one of the biggest sources of budget burn. There might be a few subscriptions that you use regularly, but most subscriptions provide only a small amount of benefit for a high annual cost. $10/month ends up being $120/year, which could have done into your savings.
Look for any other opportunity to reduce your expenses.
It’s likely that you haven’t made the best financial decisions in the past. That’s okay: many of those can be corrected. For example, if you have an expensive car note, you may be able to sell that car, purchase one for less, and pay down the rest of your car note. This could save you thousands of dollars.
Or, you might find that you’re paying a great deal of money on your mortgage. You may be able to refinance. We have another article on refinancing your debt: check it out for more info!
Decide how much you will save.
Essentially, whatever is remaining after your expenses, debt repayment, and investments should go into a savings account. Your savings accounts should be categorized as such:
- Rainy Day Fund (put up $3,000-$5,000 in this fund)
- Runway Fund (put up to 12 months expenses in this fund)
- Large Purchase Goals
Our recommendation is to focus on these things, in this order. If you don’t have $3,000 for a rainy day, or if you recently spent your rainy day fund, you need to put money in that fund before you put money elsewhere!
How much you save and how much you invest will depend on your own personal preferences. We recommend maxing out your 401(k) plan and taking advantage of employer matching.
Keep in mind: someone WITH debt should not be saving as much of their income as someone without debt! If you have debt, you should be putting your money into paying it off, as that will save you the most money in the long run due to accruing interest!
How To Get Your Annual Credit Report for 2020
One of the most important aspects of financial discipline is to understand your credit history. If you understand what’s on your credit report, you can see what information lenders are using to determine whether or not you qualify for loans. You can also see what they’re using to determine your credit score. Keep reading this blog on how to get your annual credit report for 2020 in free.
Certain items on your credit report may be hurting your credit score. However, it’s possible that those items aren’t supposed to be there. There are laws surrounding what credit bureaus can legally keep on your credit scores. Despite this, mistakes do get made sometimes.
You also may be a victim of fraud, but you might not know it. Some fraudulent items can exist on your credit report and hurt your credit score, even if they’re clearly evidence of identity theft or some other crime.
The good news is, you don’t have to be left in the dark about your credit. The US government guarantees every US citizen the right to a copy of their credit report once every year. Best of all, the US government mandates that the credit bureaus provide this report for free.
So how do you get your free annual credit report for 2020? Let’s discuss.
What Is A Credit Report?
Your credit report is an annotated history of your debts. It’s used by lenders to see your overall credit history.
What Information Does A Credit Report Contain?
Your credit report contains information going back up to 7 years for most things, 10 years for other things, and past that for a select few items like tax liens.
It contains a history of payments made on your debts, including but not limited to: credit cards, car loans, mortgage, student loans, and lines of credit. It also contains a history of balances held on those items.
Your credit report also contains information about past due payments, items in default, items in collections, and bankruptcies. This information is highly useful for lenders and employers who don’t wish to rely on just a credit score.
What Is Your Credit Report Used For?
Items on your credit report are used to calculate your credit score. Your credit score is a three digit number between 300 and 850 that gives lenders a general idea of how creditworthy you are.
However, lenders don’t just want to see your credit score. They also want other info, such as your income, your total debt balances, and your debt payment obligations. Although your income isn’t included in your credit report, the other items are. For this reason, lenders don’t just want to look at the credit score: they want to see the whole picture.
To learn more about your credit score, read our article on the quick & dirty guide to your credit score!
How Do You Get A Free Annual Credit Report for 2020?
It’s very easy to get your free annual credit report for 2020. All you have to do is go to the Free Annual Credit Report website, located at https://annualcreditreport.com. This domain is owned by the US Government, and is the only place that you should go in order to get your free credit report.
To get your free credit report, go to that website and follow the instructions. You can get a credit report from each of the three bureaus, for a total of three credit reports per year.
IMPORTANT NOTE: You can get free weekly credit reports from each of the three credit bureaus until April 2021, for COVID-19 assistance. This way, you can get more than three credit reports this year for free.
The Difference Between Your Credit Report & Your Credit Score
When most people think about “good credit”, they think about high credit scores. Any credit score above 800 is considered “excellent”, regardless of the circumstances behind the score. Keep reading this blog to know the difference between credit score and credit report.
But there’s much more to credit than a three digit number. Every person has a credit report, which is a compiled history of their loans, payments, and available credit.
What is the difference between a credit report and a credit score? Let’s discuss both in detail.
What Is A Credit Score?
Your credit score is a number between 300 and 850 that represents how creditworthy you are. The higher the number, the more creditworthy you appear to lenders.
Your credit score should not be used as a gauge of financial success. Many people with low incomes have near-perfect credit scores, if they know how to handle money. Likewise, many high-income earners have low credit scores due to past borrowing history.
What Is Your Credit Score Made Of?
Your credit score is calculated by proprietary formulas owned by the credit bureaus. These formulas were originally developed by the Fair Isaac Corporation, known as FICO today. For this reason, credit scores are still known as FICO scores.
The reality is that you have multiple credit scores, used by different lenders for different purposes. This isn’t something you should concern yourself with, as the credit score you get when you check it is an accurate representation of what lenders see when they process your loan application.
FICO scores are calculated using 5 different criteria that are considered to be relevant to your creditworthiness. These 5 criteria are:
Payment History: 35%
Payment history describes a history of payments made toward the balance of loans. It includes loans that have since been paid off.
This is negatively affected by past due payments and loans that have gone into default due to these past due payments.
Amounts Owed: 30%
Amounts owed, also called credit utilization or available credit, describes how much money you owe compared to the amount of credit you have available to you.
This is negatively affected by having a large amount of debt outstanding compared to the amount of credit you have. For example, if you have a $10,000 credit card limit and you owe $9,000 on it, you’ll see a negative effect on your score.
Age of Credit Accounts: 15%
This does not just include credit cards, but loans, mortgages, and lines of credit.
If you’ve had a longer credit history, you will be positively affected.
Credit Mix: 10%
Credit mix describes the different types of credit you have available to you.
If you have a car loan, a mortgage, credit cards, and personal lines of credit (and you’re up to date on all of them), you will be positively affected.
New Credit: 10%
New credit, or credit inquiries, describes whether or not you’ve applied to open new credit accounts.
This is usually not a big deal, but if you open a lot of credit accounts in a short period of time, you will be negatively affected.
What Is A Credit Report?
Your credit report is a comprehensive history of your credit activity.
Your credit report does not come with a number attached to it. Instead, it only describes your credit activity.
Lenders look at your credit report in tandem with your credit score in order to find things that may indicate that you’re not a creditworthy borrower. For example, your credit score cannot tell a lender if someone has had a recent bankruptcy. It’s not a descriptive measure. Instead, the lender will look at the credit report to see if there are loans in default, bankruptcies, tax liens, or if you simply have too much debt outstanding to qualify for the loan.
You can get a free credit report every year by going to https://annualcreditreport.com which is a site run by the US government. This can be used for all three major credit bureaus: Equifax, TransUnion, and Experian. Therefore, you’re entitled to three credit reports every year; one from each of the bureaus.
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