If You Have to Borrow, Borrow in the Right Places

You may think the places out there that will lend you money are helpful, even necessary. Actually, they are making money off you, and making your gap between being solvent and owing money harder to close. Pennypinchinghints.com has a few tips on how to save money when you need to borrow it.

Hold it! You have a check to cash? Do it without any additional fees. If you cash your check at your own bank, there is no fee. Wal-Mart Stores charge $2.00 per check. Other check cashing agencies will charge you even more. Every dollar counts today.

Some cash back places are good for a very short term loan of usually less than $100. It used to be at the old neighborhood pawn shop you could do the same thing by putting up a piece of jewelry, a guitar, or some object of value and buy it back later if you have the money. Today, neighborhood pawn shops have often been bought out by chains, or they are simple fronts for loans. They often charge exorbitant rates, and you end up paying much more than you should to borrow a very little, making your gap to the next pay check harder to fill in. Better to find a real a neighborhood pawn shop.

Payday loan shops are essentially the same, although you usually have to show them a check stub from an employer, sometimes, even an unemployment check will do. These loan shops purport to help you get through the month till your next paycheck, but they are not subject to state usury laws which limit interest charges to 28%. You will end up paying more like 400% in interest. Better to borrow from a loan shark that typically gets only 150% interest.

Household financing companies basically loan to house owners based on the equity you have in your house. They offer equity loans and re-mortgage your house. Often they are predatory, meaning they look in public records to see who has their house almost paid for. Then they case your house for repairs. Next, they knock on your door with offers that look pretty good for home repairs and necessary updates in appliances or furnaces, etc. But, they charge huge upfront fees and about 25% interest, and, before you know it, your have lost too much value in your house. You can get short term loans at your local bank for under 20% interest usually.

One place that doesn’t even look like a lender but a seller is your Rent-as-you-Go store. Here you can buy furniture, TV sets, and appliances over time with a month-by-month payment which is usually affordable. A store like this is a way to get what you want quickly, but is it worth it? No, you often end up paying twice what the product would normally cost. Flat screens are great, but do you really want to pay $12000 for a $600 set?

Staying afloat is hard today. Sometimes you need to borrow money to make ends meet, but there are some traps and pitfalls you should stay away from whenever you can. You might also check out Howard Karger’s book, Shortchanged: Life and Debt in the Fringe Economy.

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