Transferring funds from an instant payday loan to your credit card payment is very high risk financial activity. It may seem smart to take out an instant loan to pay your monthly payments when you are short on cash. After all, you don’t want to pay your credit card late and it only takes a few minute to obtain this type of loan.
It is easy to justify and rationalize the benefits of switching money from an payday loan (not same as high risk loans) to your debt but you are robbing Peter to pay Paul. Not only are you paying the monthly finances charges on your card but you are incurring high finance fees for the payday loan.
The Purpose of a Payday Loan
Most consumers who use payday loans do not have access to credit cards. They have bad credit or have income too low to qualify for credit card accounts. Payday loans offer an alternative for low income and people with bad credit to access money in an emergency.
In the past, such loans have been almost exclusively used by those with low incomes. When you live from one paycheck to the next sometimes the check doesn’t stretch all the way. What happens if your child need to go to a health clinic or needs medicine and there’s no income until next week?
What happens if you have a high utility bill from the power company during a colder than usual winter? The bill is due and you must keep the power on to have heat for your family.
The power company says the bill must be paid by 5 PM on Friday and you do not get a paycheck until the following Friday? What do you do? You might obtain a payday loan.
The number of consumers with bad credit has grown in recent years and its well known that one late payment on a credit account can result in high APR as well as high late fees added to the debt balance.
Not surprisingly, moving money from an instant payday loan to your debt is an option that has been increasing in popularity with the public.
Payday loans are the target of complaints by banks and economists and those who worry about consumer spending. The arguments are based on sound foundations and yet for some consumers this type of loan is the only method available to obtain money quickly.
If you have a job and a residence you can get a payday loan in less than 20 minutes. This is not a big amount of money as most states limit the amount of these loans to only $300-400 maximum.
You have up to three weeks to repay the loan and can go to the “money store” to make the payment or can have the amount owed deducted from your bank account after your paycheck has been deposited.
These are not loans you pay in installments. If you borrow $200 today you will be required to pay back $242 or so in 2-3 weeks. You write a check to the money store and they are cashing that check ahead of time. If you borrow $300 your pay off amount may be $365 after 2-3 weeks.
There are thousands of people who cannot qualify for a credit card or for a bank loan of any kind. For them, the payday loan is a blessing and a safety valve for emergencies.
If you have credit cards and a good credit rating, you know one late payment can double your interest rate and can damage your all important credit file.
On the rare occasion when your monthly payment is due, money from an instant payday loan may not be a bad option. You might pay up to $50 for the privilege but save hundreds by making that credit card payment on time.
Banks and economists hate this type of loan and in many states legislators have tried to make them illegal. There are some dangers that are inherent in the payday loan system.
For someone with low income, that $100 borrowed must be payed back in two weeks which will leave the consumer strapped for cash once again.
Another common problem is the ability to renew the loan quickly once it has been paid. This is an expensive revolving door for low income consumers. They borrow $200 for an emergency and pay off the payday loan in 2 weeks when they are paid by their employer.
Paying off that loan leaves them short so they renew the payday loan for $200 again. At the end of the month they have paid $80-100 in interest just to have money before payday.
Transferring money occasionally from an instant payday loan to your monthly credit card payment can provide you with a cushion that will save money over the long term.
The interest rate for a payday loan is extremely high when you consider 300%+ APR and yet you are only paying for 2 weeks of that year so it is more a fee and you know in advance what the loan will cost.
If you find yourself chasing instant payday loans, you are in serious financial trouble because these loans are not a long term solution to your problems!