We’re all familiar with the concept of Payday loans; high interest, nearly-criminal lending to those who’ve found themselves living a little more stretched than just “paycheck to paycheck”. I’ve heard stories where people make their required payments on time, for the designated number of months, thinking they’ve paid back their debt in full, only to find their money was going towards the daily compounding mounds of interest and that they made no real progress on the debt they took on in the first place.
Thankfully, some of these newer companies have a little bit more of a conscience when it comes to the fees people pay for their services (some of them not even charging fees at all). However, it’s still not dealing with the issue at hand: what happens when things are already tight, and then you borrow against your future earnings? Some of them are getting so good at disguising themselves, that they convince you that it’s “fair” for you to cash out early on your next paycheck (looking at you, Earnin). Every choice you make today has to be made with your current self and future self in mind because both are impacted.
If you find yourself in need of money you don’t have, you have a few options:
- Postpone the expenditure if at all possible.
- Use the lowest interest credit card you have available to you.
- Find a side-hustle that doesn’t require much of an initial investment (i.e. pulling weeds, cleaning houses, creative work, or other odd jobs).
- Sell something.
- Ask an appropriate friend or family member for a short-term loan (only if you are certain this can be paid back in the agreed-upon time – borrowing from loved ones can get messy).
- And in the worst-case scenario (let’s say your credit is wrecked and you can’t get a loan from anybody), closely evaluate the fees attached to these services and choose the one that is most fair and transparent in its fee structure.
To set yourself up for avoiding the need to borrow in the future, it’s absolutely essential to build up an “emergency fund” for things like insurance deductibles, unexpected repairs, medical bills, and other unforeseen expenses. Here are some ways to do that:
- Set up automatic contributions to a savings account (that you don’t ever transfer money out of). If the money is never sitting in your checking account, you won’t see it as “usable” money.
- When determining what you can “afford” that month, reference your budget rather than your current checking account balance.
- Do you get a tax refund? Set it aside rather than spending it.
- Work an extra side job for a few months to help boost your income until these savings are adequately built-up (ideally 3-6 months of basic living expenses).
Mistakes and hardships are to be expected, but if we can walk away having learned a lesson and in turn change our behavior, we are well on our way to better outcomes.