The following post is an excerpt from my book, Twenties in Your Pocket. I think it’s important to share right now because we are currently in the middle of a government shutdown, and many federal employees, contractors and subcontractors might be feeling the pinch. Please, do not take out a payday loan or a car title loan.
If you can’t pay your bills because of the government shutdown (or any other reason), call your banks. Call your banks and your water company and the electric company and anyone else you might not be able to pay on time. Tell them you are a federal employee and that you aren’t expecting a paycheck at this time. Ask if they can help or if they can approve a partial payment or a late payment. If you communicate your situation you are much less likely to have your credit damaged.
If you need more help, look into short term loans, using your credit on a credit card, or selling some of your belongings. Also remember that you can access the capital in a Roth IRA at any point without penalty.
For more tips, be sure to check out my book. If you want to read it but can’t afford it right now, send me a message! I know the author.
Both car title loans and payday loans are terrible, predatory traps with super high interest rates that are disguised so you won’t think they are that bad. Payday loans, for example, will charge a “fee” that is due within a week or two. If you don’t make your repayment, you will owe what you borrowed and a late fee, plus another fee so you can borrow the money again. This seems reasonable, right? Because you’re borrowing money and that isn’t free.
Except. Credit cards, car loans, mortgages, student loans, personal loans— basically all legitimate loans— share their costs with you as an interest rate— an APR (annual percentage rate) or an APY (annual percentage yield). They don’t charge a “fee” per amount borrowed, and APRs are calculated per year, not per week.
A payday loan will charge something like a $10 fee for borrowing $100 for two weeks. That is a 260% APR! (That is not a typo. For reference, the average credit card APR is 16%). If you can’t pay off your first loan and need to extend for two more weeks, now you’re paying 390%. This only gets worse. In fact, payday loans can charge up to 2100% APR.
Car title loans are similar— they charge a monthly percentage fee, which translates into a huge APR. A 25% monthly fee translates into a 300% APR—and traditional car loans usually have an APR somewhere around 4%!
If you have a car title loan or a payday loan outstanding, do everything (and I mean everythingshort of breaking the law) you can to pay it off. Tap into your retirement funds,(I will never recommend this ever again anywhere in this book so you know I’m serious about paying these loans off)sell your grandma’s china, go sell water on the corner. Pay it off immediately if you can, but don’t be surprised if they try to claim you can’t pay it off ahead of schedule. Expect there to be more fees. Payday loans and car title loans are traps and there is very little oversight of the industry.
Once you pay it off, never take out a payday or car title loan ever again.