Some insight as to why you really want to avoid payday loans, store-affiliated credit cards, and high overdraft fees.
If you need cash in a hurry, you might be tempted into getting a payday loan. But, as USA Today reports, such loans cost you as much as $30 for every $100 borrowed, with APRs that are the equivalent of more than 700%. The story offers some alternatives for the cash-strapped—including borrowing from your 401(k) and getting a short-term loan from a credit union. They too aren’t ideal, but they’re better than the terms of a typical payday loan operation.
The You’re So Money blog makes the case for why you don’t want to “save 10% today by opening a store credit card,” as consumers so often hear nowadays at the cash register. Why not? Mainly because of high interest rates, and the likelihood that if you have a store card you’re going to feel some pressure use it—thereby also increasing the likelihood of you feeling the impact of those high interest rates firsthand.
New overdraft rules go into effect starting July 1, and the new opt-in system is expected to save consumers $5 billion this year. While many bank customers will choose to opt out of programs that charge them $35 fees each time they use a debit card but don’t have funds to cover the tab, there is an argument to be made that overdraft protection is a good service—so long as you’re not unknowingly getting charged $35 or $39 a pop, which can quickly add up to a few hundred bucks in a single day. An LA Times column lists some simple, smarter, less-costly alternatives. For example:
Consumer advocates suggest that you link your checking account to a savings account or a credit card. This type of arrangement typically results in a charge that is a fraction of what overdraft protection plans cost, says Leslie Parrish, senior researcher at the Center for Responsible Lending in Washington.
For instance, most banks will charge a one-time fee of $5 to $10 to transfer money from a linked savings or credit card account into your checking account. That would cover all of the overdrafts made in a day.
If you triggered five overdrafts, for example, this would still just cost $5 to transfer the money versus $195 ($39 times five) with a traditional overdraft program.