Pros and Cons of Payday Loans & Links to Wealth Building Resources
Get ready for Barbara Friedberg’s upcoming book,
”How to Get Rich; Wealth Building Guide for the Financially Illiterate.”
“Polonius: Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” Shakespeare in Hamlet Act 1, scene 3:
Clearly Shakespeare was unfamiliar with “no money down” mortgages, or 1 percent interest on a car loan. Actually, Shadespeare didn’t even have a car:).
In modern society, loans are easily available for almost every whim and desire. Just pick up your credit card, charge it, and pay the balance off at your leisure. The range of borrowing options ranges from short term payday loans to 40 year home mortgages. Few citizens avoid debt.
Payday Loans Help Borrowers with More Month than Money
Since the inauguration of this website, almost three years ago, I’ve maintained countless “idea files” stuffed with articles and notes. Rarely do I refer to them, as my current reading diet of The Wall Street Journal, Money Magazine, and Business Week keeps the ideas flowing. Today was an exception as I dug into a dusty file and found an article (from Bloomburg Businessweek, May 24, 2010) called “Payday Nation”, written by Gary Rivlin, the author of Broke, USA: From Pawnshops to Poverty, Inc.-How the Working Poor Became Big Business. He talks about the inception of the payday loan industry which makes short term loans to almost anyone with a paycheck. For $45 bucks interest you get a $300 advance on your paycheck, to be paid back in a a couple of weeks. No one cares that the interest, if calculated annually would hit strospheric levels. The borrowers need a few bucks to carry them over until the paycheck arrives and the lenders gladly accept high default rates in an industry which enjoys a 23.8 percent return on investment.
Are Payday Loans Helpful or Harmful?
It depends. If you’re the exception and take out a payday loan very occasionally and pay it back on time, there’s probably no harm and it may be your only option. But most borrowers roll their loans over again and again paying high interest rates and continuing a cycle of spending more than they earn. I understand that it’s really expensive to live in today’s society, with food costs alone growing faster than the overall rate of inflation. It would be presumptuous of me to suggest that these borrowers cut back or take on another job, without knowing their individual situations. Yet, in the long run, you will improve your financial health by avoiding regular borrowing with payday loans and figuring out how to transfer some of your income into a bank savings account.
If you are someone who has gotten themselves in over their heads with debt, there is an opportunity to learn how to get out by participating in the Debt Movement. This is a broad effort of bloggers and businesses spearheaded by Good Financial Cents and Ready for Zero. There’s even a scholarship available for participants.
Wealth Building Links
- Frugal Rules; Frugal Rules to Live By
- Ask Liz Weston; How to Keep Mortgage Debt from Wrecking your Retirement
- Financial Highway; How Long do Negative Items Remain on Your Credit Report?
- Financial Samurai; How Much will a Foreclosure Hurt My Credit Score?
- Surviving and Thriving; 13 Ways to Prepare for Income Reduction
- The College Investor; The 5 Most Common Money Problems (and tips for dealing with them)
- Oblivious Investor; 2013 Tax Brackets
- Wealth Informatics; Tip # 9 Go Cash for the Rest of the Month
- The Money Principle; New Years Resolutions, About Saving and Wasting
- Mint Life Blog; Emergency Fund 101- How to Start Saving for a Rainy Day
Barb Across the Blogosphere
Carnival of Financial Camaraderie at Master the Art of Saving
Finance Carnival for Young Adults at 20s Finances
Carnival of Financial Planning at The Savvy Scot
Carnival of Retirement at Master the Art of Saving
Carnival of MoneyPros at See Debt Run
Yakezie Carnival at Money Wise Pastor
Have you ever borrowed with a Payday Loan? Is debt a problem in your life?
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