Payday loans compound post-holiday debt problems

MADISON, Wis. (1/3/07)--Payday loans are especially tempting right after the holidays, but they're not the best antidote for a credit card hangover (CUNA Center for Personal Finance).

Described as financial quicksand, these high-cost loans are racking up huge profits for the payday lending industry--to the tune of $28 billion a year. A study released at the end of 2006 by the Center for Responsible Lending (CRL) revealed that borrowers pay $4.2 billion every year in excessive payday lending fees, luring cash-strapped consumers into a cycle of debt that's often difficult to break.

How expensive are these loans? The typical payday borrower pays back $793 for a $325 loan, according to CRL, because most borrowers are forced to repeatedly flip the loans, incurring fees each time they renew.

The best short-term solution is a personal loan from the credit union, which will have a much lower interest rate than a payday loan. Then take steps to get back on solid financial footing:

• Know how much you owe. Add up all your credit card and holiday bills--you need to know where you stand. Avoiding the grand total is not an option.

• Create a plan to pay down credit card debt. The best strategy is to pay more on the debt with the highest interest rate, while still making at least minimum payments on all the others. Or, if you want to feel like you're making progress, pay off the smaller debts first to wipe them off the slate.

• Put credit cards on ice. Go ahead--put your cards in a container of water and stick the container in the freezer. You'll have to think twice about any new purchases before you thaw the cards. But don't thaw them in the microwave--you'll ruin the magnetic strip.

• Don't "store" card info on shopping websites. If your weakness is online shopping, it may make you think twice if you have to key in all that data before making a purchase.

• Avoid tempting credit card offers. Shred them before you have a chance to fill them out. Better yet, go to optoutprescreen.com or call 888-5opt-out to get your name off most prescreened credit card and insurance offers.

• Find money you didn't know you had. Author and financial expert Jean Chatzky recommends you evaluate each and every expense, and consider a second job (MSNBC.com Dec. 15). A temporary job may help you make ends meet until you get back on track.

• Build a savings cushion. Try to have enough saved to cover expenses for three to six months.

• Start a holiday club account now for 2007. Start--this month--on a savings plan for the next holiday season.

• Get help. Ask at the credit union for resources, or contact the National Foundation for Credit Counseling by calling 800-388-2227 or visiting nfcc.org.

	Resource Links
	Statement stuffer: Credit Counselors Help Balance the Bills
	Budget Blueprint Interactive CD-ROM
	Accel Members Financial Counseling