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.

For more information, here is a fact-sheet on payday loans.

MiCash doesn’t offer payday loans, but the MiCash Prepaid MasterCard does offer the iAdvance Line of Credit from MetaBank. With iAdvance, provided you have direct deposit set up on your prepaid card, you can take out a small loan for one month (at a cost of $2.50 for ever $20 borrowed or 12.5%) and the amount you borrowed is automatically paid back out of your next deposit. This helps you avoid extending the loan and falling into the vicious cycle of taking out loans to pay back interest on earlier loans. The program is designed for people who want to borrow small amounts in order to build credit history with the one or more major credit reporting agencies.

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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We all dream of a secure future, and wish we had more control of our finances. But we all make mistakes when it comes to money. Be nimble and avoid these common personal financial mistakes that most people make:

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Debt. We hate debt. Our ancestors hated debt. The people in the Bible all talked about paying debts and how they all ended up preaching about paying what is owed a lot. Basically, the whole story of human economic life has a lot to do with what we have, what we want, what we will give to get what we want, and what is owed to get it.

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