Valentines Day will be upon us soon — a day of the year when you’re almost obligated to spend money to prove your love.
What are you buying for your significant other this year?
If you’re like most people, you forgot to budget for February and don’t have the immediate funds needed to declare your love. Ouch!
You know what you want to get this year — it’s been in the back of your head since the last one — but you’re $500 shy and have maxed out your cards.
At least there are payday loans to get you through the holiday. All you have to do is take a blank check, a pay stub, and a bank statement to your local payday loan office, and then request the amount needed to leap the Valentine’s hurdle.
Now, you can give Juliet the diamond she’s been dreaming about, and you’ll both be happier for the money spent.
Unfortunately, when the loan center goes to cash your checks, funds aren’t available. This is because your significant other needed to pay for a vet visit when Scruffy swallowed a marble last Wednesday.
You have no cash in your account.
After the inevitable bounce, you start getting calls from the creditor demanding repayment for your payday loan.
The Payday Trap
Payday loans are attractive, making it easy to feel like, “Hey, it’s only two weeks — I need that ring for Juliet this Valentine’s. So I’ll just pay it back immediately.” But two weeks is enough time to lose the farm.
The unexpected happens every day, especially when it’s inconvenient. When you bank on having funds in the bank, rest assured, something will likely go wrong.
That one event can snowball into an increasingly higher repayment, since you’re already paying ridiculous interest on the “convenience” of a payday loan.
Remember Your Interest
When you signed the agreement, you agreed to pay back your loan plus the 25% interest most payday loan offices charge. It didn’t sound like a big deal since your credit card’s interest is 19%… it’s only a 6 point difference, right?
That 25% that you agreed to was a 25% interest rate for two weeks — not the year like it is for your credit card. So when you borrowed $500 for Juliet’s ring, you agreed to pay back $625 two weeks later.
That 19% interest from your credit card was an annual rate. For accuracy, you must compare apples to apples — turning 25% into 25 multiplied by 26 (the number of two-week periods in a year).
Do the math: over a year, your interest wouldn’t be 25% — it’d be 650%.
A 650% annual percentage rate.
That ring you wanted to get Juliet? It’s better left in the store, Romeo.
Alternatives to Payday Loans
1. Learn to Live Without
If you want to buy a special bracelet for your significant other, skip it. If it’s not a life essential, it doesn’t count as a “need.” You’ll be better off making (and keeping) promises for romance: walks together, evenings of romantic movies, and boxes of her favorite chocolate.
You need to make your mortgage payment, buy groceries, and pay for the kids’ clothes (kids clothes — not yours). If you need groceries and can’t go without because the cupboard is bare, see option number 2.
2. Ask for Help
Either ask your creditor for an extension on something you must already repay (and use that money for necessities), or ask family and friends for help. Note: only ask them if you really, really need it and have done your absolute best to make it work first. (For example: Don’t go out to eat every week and then say, “I don’t have the money to buy diapers.”)
3. Use Your Savings
If you have a stash hidden for emergencies, and it truly is one, use it. If you don’t have such a fund, start working on building one immediately. And again, if it isn’t a life essential, don’t touch your savings.
Valentine’s Day is a great excuse to show your loved ones you care. Time will always demonstrate your love better than money. Put some time and creativity into your gifts, and you can stay far away from the dangers of payday loans.
How are you celebrating Valentine’s Day?