Top 3 Measures You Should Never Resort To In This Down Market

Ivy says:

Even the best budgeters may have trouble making ends meet with this down market. I am continually surprised with fluctuating prices. What is costing me more this week  was less expensive last week. If it’s not gas, it’s produce. Or the kids’ school is raising prices on milk. Or something. It’s always something.

That said, you might find yourself left with too much week left at the end of your paycheck. And it might seem like desperate times call for desperate measures, as a commercial I heard for a title pawn place said on the radio this morning. But trust me, you are not that desperate. You are NEVER that desperate.

When cash runs tight these three services only make the situation worse:

  • Title Pawn
    The premise is simple: you roll up to the title pawn shop with a title to a car you own, they loan you some money (usually far, far less than the car is worth- generally about $300-$1000) and then they give you a monthly payment. What they don’t usually tell you is the monthly payment is only enough to pay the exorbitant interest rate- usually somewhere in the neighborhood of 25% monthly, which equals a THREE HUNDRED PERCENT Annual Percentage Rate. This rate depends on state regulations and it may be smaller or higher where you live, but it’s never, ever good. Just pay the monthly fee and you’ll be paying on that title pawn forever.
  • Payday Advance
    This one doesn’t even require a car, all you need is a job and a checking account. You go in, write them a check for the amount you’re borrowing plus the interest. Then they give you the money you’re borrowing and you have 2 weeks to pay the check off or they’ll deposit it (Can we say bank fees?). They set the hook you by allowing you to “rewrite the check”- they give you 2 more weeks, provided you pay the interest. The interest rates are again sky high- similar to the title pawn fees. At a store close to me, I called and asked their rates. If you want to borrow $200, they charge $30 in interest for 2 weeks. This means if you get caught in their scheme, you’ll be paying the store $60 per month for them to help you kite checks. Errr. No thanks.
  • Rent-To-Own
    Ooooh, nothing makes me more angry than rent-to-own. There are a lot of people in the world that confuse “want” with “need.” I see this all the time from the wanted ads on my local Freecycle list. “NEEDED: Big Screen TV for blind woman with disabilities” or “NEEDED: Laptop computer for college student with leprosy” or “NEEDED: Washer/Dryer for Christian couple with 17,532 disabled children.” Look, people. I love my television, laptop, and washer/dryer more than cheese, but I’m telling you. They’re not necessary. Especially if you are resorting to rent-to-own to get these items. If you have to do without a TV for awhile, awesome. Your kids won’t be bombarded by commercials for expensive “must have” toys. No laptop? There’s always the library. No washer or dryer? The laundromat is an interesting and mysterious place. Check it out.

So what do you do if you end up with more week than paycheck? It’s tempting to use one of these measures, but there are other ways. Scrounge up change from your couch, chairs, and under your dryer. Borrow, if you must, from friends or family. Hit a food pantry. Be creative with ramen. Be honest with the creditors you already have, “I don’t have all I owe this week. What terms are you willing to set?” You’d be surprised with what you can come up with.

But above all, do NOT let these predators in. Because that’s what they are, predators preying on people who need to stay away from these places the most.



23 Comments

  1. Diaper Cake Becca on November 17, 2008 at 7:22 pm

    Pay day loans are simply horrid and should be made ILLEGAL. They are bad for the community, bad for the family and bad for the individual. These businesses take advantage of people already down on their luck.

    If you are low on funds and it isn’t just a short term situation: scale back your Cable TV subscription, stop eating out, buy 2nd hand or USED clothing at Goodwill or Ebay, grow your own veggies and herbs (kids love this sort of thing), Stop going out to movies, Make a list and stick to your list when shopping, turn off the lights, drop your thermostat five degrees and wear warmer clothes inside, set realistic goals to save up about $20.00/week to use as your EMERGENCY FUND should you need it, combine all trips in the car into one and stop taking the car out multiple times in a day (like on the weekends)will help save gas, put a padlock on your oil tank if you have an oil furnace and deter anyone looking for take a little of your for themselves (happened to my grandma, it could happen to you!).

    I lived on the tightest of tight budgets for a year with my two little girls. We had no cable, no high speed no movie theatre trips and no luxuries. Instead we had stories read, songs sung, dances danced and REAL TIME with each other. I would not change a thing about that year. Every night we slept with hats on our heads and set the thermostat down. When it was warmer we went outside to play and my girls learned to chase butterflies, pick wildflowers and play with wild abandon (I got a refresher course, too!).

    There were times when I just needed a hundred bucks or so……when it was just so tempting to go to a pay day loan place. But I didn’t and I am so glad. I might have gone without for a few days….but when that paycheck was in my hands the ENTIRE amount was mine to spend as I needed to. I owed no one and there were no sharks circling around my checking account.

    Resist these places. Hit up your friends before resorting to this. Better yet….figure out where you are overspending and plug that hole ASAP. Pay day loans are an easy fix that encourage over-spending. We are in the economic situation, as a nation, because we have forgotten how to live within our means!

  2. Phillip Jeffries on October 22, 2008 at 9:49 pm

    Very true post. People are always looking for the so called next ‘need’ and never save, then wonder why they do it tough. It’s all about sacrifice and separating ‘need’ from ‘want’ as you, say.

  3. Angela on October 21, 2008 at 3:27 pm

    In times like this is where you have to get creative. I have never used any of those place, but have had very bad credit problems and such. We also live on a small income and some of the things we have done is… My grandpa went to a store and asked for all the dented and open stuff that they are going to be throwing away. we get to take out what we want and the rest goes to the food shelf. There is so much stuff they have to throw away because they can not sell it. Also my dad works for an apartment complex and everytime some one moves out they have to clean out the places. Lots of pleople move out and dont take all there stuff. It has to be held for a certain time, but then after that they usually throw it away. It is crazy. There is so much free stuff out there, it is just finding it.

  4. caryn verell on October 21, 2008 at 3:03 pm

    my sister in law and i were discussing these three bad things just this weekend over coffee….we are in ne miss…the title loan places in town are full up on cars..we live in a little bitty place but counted at least ten of these places just in town-no wonder folks in miss. are poor with these predatory practices taking serious advantage of them. unfortuneatly it will be awhile yet before many of these people learn that they would be better living off of beans and cornbread then going to these places for a loan.

  5. karla (threadbndr) on October 21, 2008 at 1:23 pm

    It’s rough if you don’t have a rainy day fund and a stocked pantry, that’s for sure.

    I think I’d sell blood before going to a payday loan place.

  6. Carol on October 21, 2008 at 10:20 am

    I am so feeling that crunch right now. Specially when this weeks paycheck has just turned into next weeks paycheck, since without warning my company has decided to go from weekly to bi-weekly payroll.

    I am blessed to have a full freezer and pantry, so the first thing to go on our part is the grocery store. I will go to the local farm for fresh fruits and veggies and milk. That will save a few bucks this week. If I do have to go to the grocery store, I will make a list and stick to it. And also do a once over before you check out, because there always seems to be 4 or 5 things you can live without.

    I make sure any bills that will get a late charge get paid first, and will just make calls and put off the ones that I don’t get charged a late fee on and won’t affect my credit. Most companies are willing to work with you if you call before it is late.

    Now is a good time to clean out the kids toys, your old clothes, anything that you can sell on ebay, craigslist, or some other sale site. You might be able to scrounge up a few bucks on some things that are just collecting dust.

  7. Vera on October 21, 2008 at 9:30 am

    Payday advances are scary. I’ve heard some horrific stories from people with many different incomes.

    So far, in South Carolina, the industry(which makes a mint) has prevented any reform, and it it helping to keep a poor state even poorer.

  8. Mom of three on October 21, 2008 at 9:29 am

    Tom,
    A low interest rate credit card (used only for emergencies) would still be a better financial decision than payday loans. Especially if you know you are going to have the money to pay it off in full in two weeks. Mine has a 30 day grace period, so I pay it off at the end of each month and haven’t paid interest on it in over a year.

  9. Badbadivy on October 21, 2008 at 1:38 am

    Ha. Ha. Ha. Ha. Ha. Ha. Ha. Ha. Ha. If only you knew JUST how long I have lived paycheck to paycheck, Tom. I survived with 2-3 kids for 5 LONG years on less than $30,000 combined income. Trust me, I know what it’s like to be flat broke, I lived it. And let me tell you- I’ve been down the payday advance road, although it was a LONG time ago, so I definitely know of what I speak.

    Overdraft fees? Try not writing out more checks than money you have in the bank. Besides- bounced check fee at my bank? $29, unless you have overdraft protection. $10 with overdraft protection. Both options are still cheaper than check advance fees.

    If you wanna go to a payday advance place, go right ahead. But that doesn’t make it any less a terrible financial decision.

  10. Tom Selleck on October 21, 2008 at 1:29 am

    You are speaking as one who has never gone down the road of living paycheck to paycheck. I’ve had to use a payday loan on occasion a time or two and it was a lifesaver. It saved me from paying bounced check fees (which would have been four time more than what I paid for the payday loan). Where is the “lesson” on the problems with overdraft protection fees and bounced check charges?

    Having a rainy day fund is great and I have one now, but don’t try to limit my choices.

  11. […] Ec 101 discusses three places you want to stay away from in this down economy.  (Very unfrugal […]

  12. Badbadivy on October 20, 2008 at 8:47 pm

    I have to agree with what you say for the most part, but Milehimama makes an excellent point.

    Once we were traveling out of town to go on a genealogy trip. We were paying a lot of money to research in another area and we were having to pay for gas, food, lodging.

    In those days laptops were about $6-10,000. I had a desktop computer. We rented a laptop for $100 for two weeks, while we were on the trip.

    Here’s the thing. I think you guys are taking this out of context. I’m talking about people who are feeling like they desperately need a couch or a laptop or a washer and dryer and go to a rent to own place and end up paying over 3 times what the item is worth, more in some cases. Not needing something for a very short term use or for a special occasion.

    But, really? Even then, why support companies who prey on the poor? Call me a bleeding heart, but I don’t want my money going to companies that make their living off the backs of people who don’t understand how badly they’re being ripped off.

  13. Mom of three on October 20, 2008 at 7:54 pm

    I have to agree with what you say for the most part, but Milehimama makes an excellent point.

    Once we were traveling out of town to go on a genealogy trip. We were paying a lot of money to research in another area and we were having to pay for gas, food, lodging.

    In those days laptops were about $6-10,000. I had a desktop computer. We rented a laptop for $100 for two weeks, while we were on the trip. It was expensive, but was worth it because of the money I saved on the research trip by having my genealogy data with me. Now you can purchase a laptop for under $600 I wouldn’t dream of spending that kind of money but at the time, it was money well spent for a once in a lifetime trip.

    I think you have to put some thought into finances and so many people fly by the seat of their pants when it comes to money. Oh this looks pretty so I have to have it. Well, it will look just as pretty in two weeks when it’s 25% off.

    Hubby and I eat every Saturday (our date night) at Cracker Barrel. THey have had Halloween stuff out since August. It is currently 45% off. Halloween is still 11 days away. Now I know you want to decorate early, but August? If you had waited and bought it at the first of October it was already 25-30 % off. Wait until a few day before and it will be 75% off. Wait until the day after and buy for next year (these are nick knacks, not candy) and it will be 90-95% off.

    There are some things that can’t wait; Medical stuff (but most hospitals have payment plans). Food (but if you are seriously considering payday advance for food, consider first a food bank and canceling your Internet). For the rest, learn to budget, go to night school to get a better job, borrow from a friend (even if you agree to a payment with interest plan it’s cheaper and they tend to be more generous.)

    This is a good time to have good credit, use it sparingly and pay it off as soon as possible. Have an emergency plan. And remind yourself, Cheetos are not emergencies.
    Now I am off to pay off some bills. Renovation is expensive. 😉

  14. Lisa- Domestic Accident on October 20, 2008 at 4:50 pm

    Armchair Housewive, I loved your comment. You were green before you knew it. It always amazes me how cheapest is often best. Now they are coming out with all the bad BPA in cans and how dried beans are the healthiest for us.

  15. Badbadivy on October 20, 2008 at 2:49 pm

    I dunno, Milehimama, I’d still thing Freecycle and Craigslist would be the way to go even in a short term situation. I suppose I would consider it as a last resort, if I knew for sure the situation would be temporary.

  16. Milehimama on October 20, 2008 at 2:29 pm

    I disagree on the Rent to Own. We’ve used it before, when we lived in a temporary place for two months. Renting a washer and dryer cost us $30 a month; we had 4 children at the time and the laundromat would have cost much, much more than that.

    Not to mention finding the time to go to the laundromat.

    Then again, I was just “renting” with no intention of purchasing – it’s the “to own” part that will get you!

    I’ve also sold things (not taken out loans, just got cash for my junk) to pawnshops and gotten more for them than I would at a garage sale (VHS tapes, for example). They are GREAT places to shop for tools, too.

  17. Armchair Housewife on October 20, 2008 at 1:48 pm

    I appreciate your comments on “what is needed”. I marvel as some of my family members who cannot pay their rent but have huge cable packages and cell phones. My husband and I don’t even have a cell phone or cable and, while we are far from wealthy (we still rent) we can certainly pay our rent (thanks be to God). It amazes me what people view as “essentials”.

    I remember when my husband and I were first married, we were so broke I bought dry beans because we couldn’t afford canned! But I sure learned how to make beans from scratch! But we never thought about putting anything on credit that wasn’t literally do-or-die, and I am thankful because, while we have student loan debt, we never wracked up the credit card debt that so many young people get. We just did without, did just what you said: we used the library, we watched dvds borrowed from the library on my husband’s computer because we had no tv, we took public transit, asked for rides, we drank water and ate simply and didn’t waste. Now our margin of error is a bit more generous, but I still try to evaluate what is “necessary”.

  18. Michelle on October 20, 2008 at 1:18 pm

    I agree – these places are predators. I have never even heard of title pawn shops until I moved to TN – perhaps they aren’t legal in the state I am from? But I worry about people getting stuck in these cycles!

  19. Krista on October 20, 2008 at 12:58 pm

    I just moved to a small-ish town in Mississippi and you would not believe how many title pawn and pay day advance places there are here. Even my oblivious 13 year old noticed it.

    We do have a military base here, so that may pay a part in it, though.

    Mississippi is consistently the poorest state in the country and it begs the question – which came first – Mississippi being the poorest state or the pay day advance places that rip you off?

    It is all a vicious cycle.

  20. Rebecca C on October 20, 2008 at 12:53 pm

    My best way to make the paycheck last longer than the week is to stay home. If you don’t go shopping you won’t want to get that little extra, and if you aren’t driving around you will use less gas. Besides renting a movie from a redbox ($1 if you don’t have a promo code) or the local rental store is cheaper than going to the movies, even if you buy all the snacks. And no one can deny the ability to pause a movie to change a diaper, or go to the bathroom is a great perk as well.

  21. badger on October 20, 2008 at 12:48 pm

    I’ve been down the payday advance road before. It is a deep dark pit that you can never get out of. Just think, if you don’t have the money now how do you know you will have it in 2 weeks? I don’t even buy checks anymore just the atm card.

  22. xarkGirl on October 20, 2008 at 12:40 pm

    good advice. i’ve taken to asking myself “do you really need this right now?” at the store before an item goes in the cart. in the long run, i think a little reassessment of needs vs. wants will be a good thing.

  23. Michael on October 20, 2008 at 12:34 pm

    Not only to be avoided, but to be shunned at all costs! These places will get you into more trouble than you were in before. And stay away from the for-profit companies that promise to work with your creditors to lower your debt! Not all, but most are complete crooks. Instead go to the not-for-profit Consumer Credit Counseling Service. The real one. Those people can help you out and are legit.

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