Payday loans are a bad idea that unfortunately is a huge business in America. When people live paycheck to paycheck, and run out of cash before their next pay period, they are often tempted to get a payday loan. These are short-term, high-interest loan sas an advance against your next paycheck. Perhaps your car breaks down, and now you have have an unexpected expense. With no credit, and no friends or family to loan them the money, a payday loan seems like a a good option.

The problem is that people seldom borrow the money for one month and pay it all back the next month. Typically, they roll over the loan, and try to keep up with the high interest rate. What happens is a harsh cycle of constant payment of interest owed, and taking out a new loan to get you through to the next pay period. After a year of this, you wind up having paid far more in interest than your original first payday loan.

Because payday loan places are considered predatory lenders, taking advantage of low income people, many states have banned them outright or severely restricted what they can do. Thus, many payday loan companies with physical locations have closed up shop and went online instead. They have also gotten around new laws, by rebranding themselves and “micro loan” companies along the lines of quite legitimate nonprofits such as Kiva.org. They also try to get through a loophole in the law to say that their loan is an “auto loan” when in reality, they aren’t selling you a car directly, and aren’t requiring proof that you are actually using the loan to by a car.

Now, apparently, the FTC is going after the worst offenders. A recent post on the FTC’s web page describes a District Court case brought by the FTC against Payday Financial, LLC, doing business as Lakota Cash and Big Sky Cash, who allegedly send documents to their borrowers’ employers that mimic a garnishment by the Federal government. The FTC alleges that these lenders illegally revealed consumers’ unproven debts to their employers and deprived consumers of their right to dispute the debts or make payment arrangements. The complaint further alleges that lender “…misrepresented to employers that the defendants are legally authorized to garnish an employee’s wages, without first obtaining a court order.”

While not as bad as payday lenders, banks are also getting in on sucking in high profits on the backs of people who are tempted to get quick cash for short term needs at high interest. One typical method is to offer a payday loan if you keep a minimum deposit of say $200 with the bank. Of course, if you don’t pay it back right away, the interest compounds so that the annual interest is quite high. Similarly, credit card holders are no doubt used to getting something that looks like blank checks from their credit card company. The credit card company encourages you to “use the checks” like cash, hoping that you do not read the fine print about the interest rate being the “cash advance” rate, which is usually much higher than the interest rate for purchases. For example, your purchases interest rate might be 12% but your cash advance rate 24%!

So, the bottom line is if you feel you need quick cash, start budgeting like a mad man. If your car breaks down, take the bus for a while until you can save enough for another car.

How to pay off credit cards

Debt is a fact of life for most people. Yet, getting out of debt is possible when you set your mind to it. The thing to remember about debt reduction is this simple fact, if you pay down debt every month rather than adding to it, it is only a matter of time before you will be back in the black. The question is, can you do it in a reasonable time frame, or will it stretch on indefinitely?

A good time frame for eliminating debt that represents 1/3 or less of your annual income is three years. For example, if you make $30,000 a year, and you have built up $10,000 in credit card debt. You would have to come up with about $330 a month for three years if you were paying 9% interest on that credit card debt.

Financial experts generally agree that the best way to chip away at your debt is to tackle the highest interest rate debt first. So, if you had one credit card at 9% interest but another at 14% interest, you would be much better off getting rid of the higher interest rate card first, to lessen the impact of compounding interest. The only reason to tackle a lower interest debt first is if it is small enough to eliminate quickly so you get the psychological impact of getting rid of one of your worries.

Here are some strategies to consider.

Making Extra Income

If you did a little moonlighting work on the weekends or an evening a week, you might make half or even all of your monthly debt reduction goal. This is less painful than saving, unless you really dislike the moonlighting work. Maybe you can get part time second job over the holidays, or through the summer. Whatever you do, it helps to apply all of that extra income to your debt and resist the urge to splurge.

There are websites that will pay you to write articles. You can also make crafts and sell them on Etsy, Ebay, or Craigslist. It’s also possible to resell things you buy at thrift shops and garage sales on Ebay.

Spend Less

Spending less than you make each month is easier said than done.. Well, consider the fact that if you simply brown-bagged your lunch every day instead of eating out, you would save at least $5 a day. With 20 work days in a month, that’s $100 right there. You can save another $50 a month by buying food in bulk and freezing portions to use later. Next, consider cutting out some monthly expenses to the tune of $50 a month. Perhaps you can eliminate premium channels on your cable bill, or cancel cable all together. With digital TV signals for the major networks being free, it’s not as bad a sacrifice as you think.

There are many blogs out there that give you thousands of tips for frugal living–everything from avoiding paper products like paper towels, to how to burn less gas in your car by altering your driving habits.

Experts also agree that simply by tracking all of your spending in a spending diary can help you avoid unnecessary purchases. Think about those books you buy at books stores (instead of going to the lending library), or those cups of coffee you grab at the convenience store or coffee shop.

If you smoke, add it all up and see what your annual cost is. Quitting will help both your pocket book and your health.

So, the bottom line is it might take you three years, but as your debt gets less, paying it down actually goes even faster because you are spending less in interest payments on that debt.

Obviously, a prepaid MasterCard can help you manage your finances and avoid adding to your debt.

A grad student living paycheck to paycheck named John borrowed $50-$100 every month from the head of the University of Arkansas English department, Dr. Leo Van Scyoc, who was a beloved scholar and WW II veteran. As John’s employer Dr. Van Scyoc essentially granted him a payday advance at zero percent interest, out of his own pocket. John always paid back the loan when payday came, and he avoided the credit trap of payday loans.

Payday loans are notorious for their average high annual interest rates. According to the Consumer’s Union:

“Payday” loans are small, short-term loans made by check cashers or similar businesses at extremely high interest rates. Typically, a borrower writes a personal check for $100-$300, plus a fee, payable to the lender. The lender agrees hold onto the check until the borrower’s next payday, usually one week to one month later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed(1) , up to a maximum of $300. The interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.

So, if you like John, have a kind-hearted boss, you may be surprised to discover that he or she will help you out in a pinch. Of course, don’t abuse this privilege. When you get paid, pay back the advance.

Flickr image by Teresia

A prepaid debit card allows you to pay for gas at the pump with plastic. However, you may not realize that many gas stations will preauthorize as much as $50 or even $75 on the card if you use a signature transaction instead of a PIN transaction. This is also known as a “block” on the card. The reason it happens is that the gas station doesn’t know if you have enough money on your card to cover your gasoline purchase. Find out more about blocks on the FTC website.

In an MSN Money article British Petroleum spokesperson Sarah Howell explains, “We want to make sure that we’re protected, that we get payment for the gasoline.”

A PIN transaction at the pump (or inside the gas station) is in real time, and avoids the block or hold on your card. However, because signature transactions are “offline” and not in real time you may experience a block for a few hours or even several days until the transactions are processed in a “batch” process at some point in the future.

In the case of a checking account debit card, if you have less than the block amount in your account, you may be hit with an overdraft charge, even though your actual charge is less than your balance. For example, suppose your pump transaction is $27 and you have a $50 balance in your checking account. The pump pre-authorization of $75 causes you to be temporarily overdrawn.

The MiCash prepaid MasterCard protects you from any overdraft fees because whenever you attempt a transaction that is more than the cash you have loaded onto your card, the transaction will be rejected at the point of sale. Not all prepaid cards are alike and some do allow overdrafts and charge overdraft fees.

The bottom line?

• Use your PIN number when paying at the pump, or
• Have at least $75 on your card to cover any pre-authorization “blocks” on signature point-of-sale transactions.

Photo by samuraipaolo

Until the day when resources are no longer scarce and everyone can get what they want, debt is bound to be a part of life. It’s quite likely that everyone has experienced being financially short-handed at one time or another. It could be a rent loan from a brother or sister, or maybe a considerable sum needed to pay off hospital bills. These debts could be the ones paid off to go to college, or the kind taken on in order to start a new business.

Debt is never a pretty experience in any shape or form. It is nerve-wracking and can be very painful, yet it can be managed properly. After all, if people did not borrow or lend, much of the financial market in the United States would stop cold. In that regard, debt is a natural part of life. It is also a part of life that we can, if not totally avoid, still learn to control to the best of our abilities. It is all a matter of thinking smart and spending well.

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Here at MiCash, we keep giving you tips on the best ways to save your funds, fix your budget, protect yourself from having your money stolen, and basically milk everything you have earned for what it is worth. We hope we are not giving you the impression that we are promoting a miserly lifestyle. While it is true that saving up is very important and learning to spend less than what you earn everyday is a good rule of thumb to live by, we are not totally shunning the idea of indulging oneself every once in a while. Whether it’s to reward yourself for doing a job well done or as a way to relieve yourself of stress, splurging can be a good thing. We just have to make sure that actually have the money to splurge.

The Difference between Splurging and Overspending

To splurge is to indulge oneself with some luxury or pleasure, usually a costly one, because you can. If you do not have the cash to spare, you would be overspending, not indulging on your spending power. Overspending is like eating an undercooked meal. You eat it because you are too hungry to wait, and the next day, you get an upset stomach. Many times, we have experienced this: Going on a shopping spree and ending up wishing we did not buy half of the things we just bought, because having a lighter wallet feels too unsettling.

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With the holidays over, we have now fallen back to the daily grind. Some of us, due to an excess in year-end indulgences or generosity, have greeted the New Year with lighter pockets and slightly shrunken savings accounts. And you know what they say, “There is no time like the present.” If you want to replenish your savings and acquire more money to spend for this year and further beyond, better start now than risk the fate of having continually dwindling funds throughout the year.

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Is it time to switch to a pre-paid Visa or MasterCard? Let’s face it: It is a known fact that managing a regular credit card is tough for many people. Many of us are guilty of maxing out our cards and putting off paying more than the minimum monthly dues for prolonged periods of time. For people who are not very savvy at managing their debts, keeping a credit card is just too much.

Fortunately Visa and MasterCard have created a means to help people simplify their cashless purchases with pre-paid Visa and MasterCard. These cards are used in a very similar way to regular credit cards. The difference is that pre-paid Visas and MasterCards are front-loaded, meaning your account must first have sufficient funds for you to be able to use them. For as long as your account has enough money loaded, you can use the card any way you want and in any place where Visa and MasterCard are accepted. With this type of card you can go shopping, dine at an accredited restaurant, book a flight or hotel room or purchase items online.

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Credit and debit cards are handy pieces of plastic. Sure, they offer a great way of scraping off the ice on your car window. But more than that, above all, they offer the convenience of cashless shopping. Since the invention of credit cards a few decades back, many people have been lured to the promise of purchasing without the need to carry cash. Credit cards offer convenience and safety. However, along with the convenience brought about by credit cards are the many financial burdens that credit card mismanagement brings.

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Your home is perhaps the single most expensive investment you have ever made. Your home is your haven and sanctuary, and it is where you and your family feel safest. However, a home with an adequate insurance coverage gives better peace of mind as it offers financial protection against theft and damage.

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