What is a Payday Loan and How does it work?

A payday loan also called a “cash advance” or “check advance” loan, is a type of unsecured personal loan based on how much you earn in your paycheck. These loans charge borrowers with high interest and have short-term repayment demands.

Due to their extremely high-interest rates, payday loans can keep you in a cycle of debt. Payday loan lenders usually don’t consider the borrower’s ability to repay and often charge added fees through hidden provisions. Read on to learn why payday loans are not typically an ideal option and to see some better loan alternatives.

How Payday Loans Work

Amount Borrowed

There is a limit on how much you can borrow in most cases. The amount can range from $300 to $1,000, with $500 typically being the most common amount.

High Interest

Payday lenders charge all borrowers the same interest rate. It can be as high as 780% annual percentage rate (APR), with an average payday loan running as high as nearly 400% APR.

Short-Term Repayment

Payday loans must be paid back once you get your next paycheck. The loan term usually goes from two weeks to a month.

No Installments

A regular personal loan allows you to pay back the money borrowed in installments. With payday loans however, you will most likely have to pay back the interest and principal all at once. This amount is usually more than what your budget can handle.

Automatic Repayment

When taking out a payday loan, you sign a check or document that permits the lender to take money out of your bank account. If you fail to repay the loan as scheduled, the lender will either cash the check or withdraw the money from your account.

Alternatives to Payday Loans

If you need to borrow money, consider the following alternatives instead of taking out a payday loan.

Create a Budget

Evaluate all your expenses, including rent, utilities, and food, and create a budget. Know how much money is coming in and how much you can afford to spend on your expenses. Then, find ways to cut down on unnecessary expenses to be more in line with your income.

Get Credit Counseling

If you need help dealing with your debt, you may need to get credit counseling. There are non-profit agencies that can offer credit advice at little to no cost. They can also help you set up a debt management plan (DMP).

Better Loan Options

Getting a personal unsecured installment loan from your local credit union is probably a better option over a payday loan. With lower interest rates and fees, they are most especially beneficial for borrowers on a tight budget. When you make on time payments, it will even help build your credit and help you qualify for lower loan rates in the future! Learn more about our Fast Cash Payday Alternative Loan here.*

*Loans of $200 to $1,000 available for terms of one to six months. An application fee of up to $20 will be charged; other fees and charges may apply. At least one month of First Financial Federal Credit Union membership is required to obtain a Payday Alternative Loan, and is open to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Not all applicants qualify, subject to credit approval. Rates vary based on creditworthiness, but will not exceed 28%. Terms and conditions of this offer may be subject to change at any time.

References:

https://www.investopedia.com/terms/p/payday-loans.asp

https://www.debt.org/credit/payday-lenders/

https://www.moneycrashers.com/how-do-payday-loans-work-dangers-payday-loan-alternatives/

https://www.investopedia.com/credit-unions-vs-banks-4590218

Should You File for Bankruptcy?

Your debt feels impossible. New bills and past due notices are showing up constantly. Creditors won’t stop calling. As you feel like throwing your hands in the air, you wonder – should I file for bankruptcy?

Due to the COVID-19 pandemic, this is a reality that many might be facing. Millions of Americans across the country have been unemployed since earlier this year. It’s incredibly easy to get behind on bills when the money isn’t coming in, but the bills are still showing up. It’s an overwhelming feeling.

The longer this pandemic continues, the more likely it is that you’ll see an attorney on a TV commercial asking if you’re thousands of dollars in debt, feeling overwhelmed by creditors and looking for a solution. Next – they’ll present the option of filing for bankruptcy, which who wouldn’t want to have their debt forgiven, right? Not so fast.

Filing bankruptcy might help you get rid of your debt, but it’s important to understand the serious, long-term effects it can have on your credit. When you file bankruptcy, it remains on your credit report for 7-10 years as a negative remark, and it affects your ability to open credit card accounts or get approved for loans with favorable rates.

What exactly is bankruptcy? Bankruptcy is a legal process designed to help individuals and businesses eliminate all or part of their debt, or in some cases – help them repay a portion of what they owe. There are several types of bankruptcy, but the most common types are Chapter 7, Chapter 11 and Chapter 13.

Chapter 7 forgives most of your debt and allows you to keep all of your assets with a few exceptions, depending on state and federal laws. During the process, you and your creditors are invited to a meeting where they are allowed to make a case as to why a federal bankruptcy court shouldn’t forgive your debt. Once your case is approved, your debt will be forgiven, and none of your creditors will be allowed to hassle you over the forgiven debt.

Chapter 11 is generally for small business owners. It allows small business owners to retain their business while paying back debts according to a structured plan. With this option, business owners give up a certain amount of control to court officials, debtors, or counselors assigned to help them rebuild their credit. Despite losing some control of the business, owners are able to keep their business running while working on their financial future.

Chapter 13 is different than Chapter 7 in that it requires you to come up with a plan to repay your creditors over a 3-5-year period. After that, your debt will be forgiven.

Things to consider if you’re thinking about filing bankruptcy:

It’s important to note the serious impact bankruptcy can have on your credit report. Bankruptcy effectively wipes out everything on your credit report – good and bad remarks, and will stay on your credit report for 7-10 years.

This also means any account you’ve paid off or left in good standing that could positively impact your credit score, is also wiped out. Any hard work you’ve put into building your credit is basically nonexistent once you file bankruptcy. All the negative remarks will be gone as well, but you will also be considered high-risk when it comes to lending moving forward.

Bankruptcy affects your ability to open lines of credit – credit cards, mortgages, auto loans, personal loans, etc. Because you will be labeled high-risk, most banks will likely deny any application you submit for a line of credit – even though your credit score might have gone up when your credit report was initially wiped out. If you are approved for a line of credit, you’ll likely get a much higher interest rate which will make your monthly payments higher too.

Should you file for bankruptcy?

When it feels like your debt is caving in on you, bankruptcy might seem like the only way to reach financial peace. Here are a few steps to consider taking before you consider filing.

  • Take a moment to talk to your creditors. Negotiate and see if there are options to make your debt more manageable. Can you lower the interest rate? Is it possible to settle for less than you owe? Can you set up a payment plan?
  • Talk to us about your financial picture. We might have options that will allow you to consolidate your debt into one, more affordable payment.
  • Go through your house. Do you have things you don’t use or need that you can sell? If so, sell some of those items and apply that money to your debt.

Also, it’s important to note that not all debt is eligible for bankruptcy. While bankruptcy can eliminate a lot of your debt, some types of debt cannot be forgiven:

  • Most student loan debt.
  • Court-ordered alimony.
  • Court-ordered child support.
  • Reaffirmed debt.
  • A federal tax lien for taxes owed to the U.S. government.
  • Government fines or penalties.
  • Court fines and penalties.

Bankruptcy should be the last option you consider. Look through your debt, see what you owe and carefully weigh all your options. Again, make an appointment to come in and talk to us and we can help you review your options. We’re your credit union, and we’re here for you!

What to Do After Paying Off Debt

Depending on the amount of debt you have, paying it off can feel like a huge accomplishment. If you use your credit card regularly, paying on the bill each month may not be an activity you think too much about. If your credit card debt is on the larger side, finally paying it off can feel like a big weight off your shoulders. Besides being an accomplishment, it’s also time to be proactive so going into debt doesn’t happen again. Here are some steps you should take after paying off a large debt.

Step back and take a look. Paying down on your debt each month is something to be proud of. It probably wasn’t easy, but you did it. In order to make this happen, you probably had a budget in place that maximized your debt payments in order to pay it off. Now that you no longer need to make payments on this bill, it’s time to look over your budget again and figure out what needs to be changed moving forward. Maybe you had to cut back in other areas while you were working on paying down that debt. Or maybe there’s a big ticket item you’ve been waiting to save up for. Now you can adjust your budget and you’ll probably find that you have a bit more wiggle room.

Save money. When sacrifices are made to become debt-free, your savings can often take a hit. If things weren’t too tight while you were working on paying down your debt, it might be a good idea to take that same amount of money – but now put it into your emergency savings account. If you have direct deposit, you can even take that monthly amount and set it to go right into your savings account so it’s automatic.

Set a goal. Whether you’re thinking about planning a future vacation or making a big home improvement that you’ve been putting off, using the money you’ve already budgeted for your previous debt payments is an easy way to save quickly. Consider opening up a separate savings account just for this goal, and keep transferring the money in until you have enough saved.

Stop going into debt. Don’t pay off one large debt and then start racking up more. Every time you log into your mobile banking app or check your account balance online, let it remind you to stay out of debt and how good it feels to pay it off. Stick to your budget and be disciplined!

 Article Source: John Pettit for CUInsight.com

Questions to Ask Before Applying for a Personal Loan

Personal loans are a popular alternative to credit cards, because like credit cards – they are paid in monthly installments and come with a low interest rate if you have a good credit score. From debt consolidation to paying for life events, personal loans give borrowers money which can be paid back over time. Typically, payments are the same amount each month – as opposed to credit card payments that might vary depending on your balance. Keep reading to get all your questions about personal loans answered, and find out if this is the best financial option for you before you apply.

Is a personal loan right for me?

Personal loans are a way to consolidate high-interest debt at a lower rate. A personal loan can be used for just about anything – a home improvement project, wedding, debt consolidation, or other costly undertaking when you don’t have cash on hand or in the bank. Personal loans give borrowers money up front to be paid back in monthly installments over a fixed period, usually at a rate much lower than a credit card would have.

How much can be borrowed with a personal loan?

This amount will be based on your income, employment, financial history, and how much debt you currently have.  A lender will look closely at your debt-to-income (DTI) ratio, which is the percent of debt you currently have in relation to your before tax income. A favorable DTI is 43% or less, typically.

How much should I borrow?

Just because you get approved for a certain loan amount, doesn’t mean you should accept it. You also need to look at the other items you spend money on each month. Borrow the amount you know you will need to fund what you need the loan for, and don’t acquire extra debt. For help deciding what amount you should borrow or what your monthly payments might be, check out our financial calculators. Make sure your personal loan gets factored into your monthly budget and that you can comfortably afford the payments.

How can I get the best loan rate?

Do your homework ahead of time, and shop around. Often a loan with a shorter term will cost you less over the life of the loan, than one with a longer term will – though your monthly payments will be less on a loan with a longer term. Your credit score (the number that tells lenders if you are credit worthy and the financial risk you would pose) is another important component in receiving a competitive rate. The higher your score, the better your rate will be.

Is there a way to pay off my loan faster?

If you have room in your budget, it’s always a good idea to make extra loan payments when you can. Perhaps you can make bi-weekly payments instead of just once per month, or an extra payment every so often. This will only help you pay your loan off faster and you’ll also pay less in interest. Even rounding your monthly payment up can also help you pay your loan off quicker. For example, say your monthly payment is $173. If you round this amount up to $200 you’ll continue to pay the loan down and will ultimately pay less in interest over the life of the loan. Just be sure your loan doesn’t include any pre-payment penalties before you begin making extra payments.

Can a personal loan help my credit rating?

Part of your credit score is based on credit utilization, and lenders usually like to see that you’re not using more than 30% of your available credit. If you’re planning to use a personal loan to pay off credit card debt, you can actually lower your credit utilization – which should boost your credit score. Because a personal loan is considered an installment loan, whereas credit cards are considered revolving debt – adding it to your credit profile can demonstrate that you can successfully handle other loan types.

How can I apply?

If you live, work, worship, volunteer or attend school in Monmouth or Ocean Counties in New Jersey – check out our personal loan options! Our personal loans have a fixed rate, start at $500, have flexible terms up to 60 months, and no pre-payment penalties.* You can apply over the phone or right online, and we even have electronic closings available.

A personal loan is a great option that can help you save money instead of going through the high cost of retail financing or racking up high-interest credit card debt. Do your research and find the best option for your budget!

*APR = Annual Percentage Rate. Actual rate will vary based on creditworthiness and loan term. Subject to credit approval. A First Financial Federal Credit Union membership is required to obtain a Personal Loan, and is open to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. Federally insured by NCUA.

Article Source: Gobankingrates.com

How to Stay Out of Debt this Year

Are you one of those people who continually carries debt into the new year? Let this be the year you really say goodbye to lingering debt. Here are a few tips for not racking up any new debt and paying off previous debt.

Forget about any extra money: It’s a new year, so more than likely your paycheck just got a little bump. If you do have some extra money in your paycheck due to a new year’s pay raise, do something productive with your extra cash before you can spend it on things you don’t truly need. Set your new year’s budget as if you are still making the same salary as last year. Put the extra money into your 401k or into your emergency fund. Another idea is to open a new savings account that will help you save for trips or entertainment plans for the year ahead that you’d normally put on a credit card.  Even if you only got a small raise, over time it all definitely adds up.

Set goals and keep them: Money goals are key to keeping your finances on track. Your budget is probably your most important money goal. You know how much you make, and if you haven’t set a strict annual budget for yourself yet in the new year – it’s time to map out your monthly bills and truly stick to your spending allowance. Automating bills and direct deposit right from your paycheck is an easy way you can help yourself stay on track.

Stop using your credit card: Of all the cards in your wallet, your credit card should be the one you reach for last. If you’d like to see your debt disappear in the new year, you’re going to have to start telling yourself no. Sure, shopping is fun – but how often are things that aren’t necessities worth having more debt over?

If you need help creating a budget this year, check out our easy budgeting worksheet. For more tips on managing your credit and reducing debt, view our credit management and debt reduction guidebook.

Article Source:  John Pettit for CUInsight.com

3 Tips to Keep Debt Away

Sometimes we build up debt due to emergencies or situations that are beyond our control. Sometimes we just buy too many things we don’t really need. Here are three things to think about when it comes to your finances and how you can avoid debt as much as possible.

Set financial goals: Goal-setting is very important when it comes to your money. Your budget should be an easily attainable financial goal for you. If you’re having trouble staying within a budget, it’s probably a good idea to take a closer look at it. When it comes to saving money, have a defined purpose. Every time you get paid, set up your direct deposit to put money into retirement and an emergency fund automatically. This way you won’t physically be transferring the money and convincing yourself that you can do without putting anything into savings this month. If there is a large purchase you want to make or a vacation you want to go on, open a savings account for that wish list.

Have more self-control: It’s easy to buy something impulsively (especially when it’s inexpensive), but those small purchases can really add up if you’re making them all the time. You need to start saying no to yourself and be really disciplined if you want to be free of debt. Having new things is great and exciting, but are those items worth going into debt over?

Ignore pay raises: If you budget your paycheck as if you’re making less than you do, it’ll be easier to save for the things you want in the future. Plus, you won’t have to put yourself in debt to get them. It may not always be easy to cut back, especially if you have a big family, but every little bit helps. And when pay raises come, redirect those additional funds to your savings account and forget all about them!

Article Source: John Pettit for CUInsight.com