Payday Loan in Your Financial Picture

In an ideal world, we all would have a couple thousand dollars in a savings account for emergencies. An ideal world would also not include the baby getting sick on the same day that the car wouldn't start, again. While you would love to get paid enough for these worries not to bother you, most of us don't. So what do you do? Is that payday loan place down the street going to help, or hurt? It depends.

When you are living on the edge of financial insolvency, budgeting can make Congress look like amateurs. It's not that you don't want to save or have a spending problem; you just don't have enough income to more than cover your usual expenses. And ever tried calling a credit card company and begging for an increase in your credit line when you NEED it? So whether or not a payday loan will be a help or a nightmare will really depend on four factors: how much credit you have on your credit card, the amount you need, whether you can pay it back and if this really is a one-time expense.

1. If you have the room on your credit card, use it. The interest rate is much lower than a payday loan, and you are much less likely to run into predatory lending. If you had the room on your credit card, you probably would not even be considering a payday loan. A payday loan may be better than going over your credit card balance, because the fees on a payday loan are less than the over-limit fees on a credit card.

2. If you need more than $500, don't get a payday loan. You won't be able to pay it back your next paycheck. If you made that much, you would have other alternatives. Instead, talk to the bank about a short-term loan. They offer better terms than a payday loan.

3. If you can easily pay back a payday loan, and the credit card discussion applies, you might benefit from a payday loan. Sometimes you do have more ability to pay on payday than at the end of the month. Especially if you made a purchase this month that you had been waiting until you could afford it, then got caught short just before payday. A payday loan can be a helpful budgeting penalty in this case.

4. Is this really a fluke? If it happens often, then a payday loan will just end up getting rolled over. A payday loan more than once or twice a year indicates a deeper problem with either your budgeting or your pay level. When you find yourself getting the third payday loan of the year, or rolling one over, go talk to a certified credit counselor for help. You may qualify for some form of assistance, or you may need help budgeting. But don't let payday loans become a habit.

There is a very specific place in your financial plan for payday loans, but it is also very limited. By only using them as that one very specific part of your financial picture, you could take advantage of them without getting burned.