Payday Loans – The Quick Fix

The reality of life from a financial perspective, for many people, is that of living paycheck to paycheck. This means that for the vast majority of middle-class income earners, the ability to meet basic monthly expenses and even a few minor unforeseen repairs is based on a consistent paycheck. Generally, people learn to manage their resources in a way that allows this to be successful with this financial situation, however, some become overwhelmed when faced with an unexpected bill, needed repairs, or something else that comes along.

Payday loan companies are were developed to help people meet the demands of being a budget-conscious person faced with a need for immediate money. A payday loan is similar to a cash advance. It is a loan payment of a small amount, typically no more than 1000 pounds, or so. Because of the competitive nature of the payday loan industry, convenience and customer service have evolved greatly. Borrowers can easily visit a convenient online payday loan site, fill out a brief application, and receive payment as soon as the next business day, assuming the loan is approved.

Applications are kept confidential, and many companies offer instant approval, meaning the application is automatically evaluated with in moments, based on the information in the application, and the borrower’s credit. Payments can take the form of cash, or direct deposit. The direct deposit into a checking account allows the customer to obtain the loan efficiently, and to utilize the advantages of working with an online lender.

As payday loans are offered as a convenience or emergency source of funds for borrowers, fees or interest on the loans is generally higher than other types of loan or credit. Most companies charge a specific fee based on the loan amount, and assuming the loan is paid back within a specified timeframe. Again, because the payday environment has become more competitive, and since the efficiency of online business has reduced costs for the lender, the loans are much more affordable.

Borrowers do need to understand that these types of loans are intended for emergency or convenience use, and the fees or interest charges do not make sense as a source of funding for non-essential purchases. However, for many people, payday loans can be a life saver in a tough situation where a car needs repaired, a bill needs paid, or an unexpected call for cash arises.

Check out IMMEDIATECASH they are a UK company offering just such a service.

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Virtual Credit Cards

Millions of People fall victim to credit card fraud every year. A fifth of these people blame the internet. In fact, the top reason people shy away from internet shopping is the fear of theft of personal information.

Virtual credit cards, also known as substitute credit card numbers or controlled payment numbers, have already been around almost seven years but have never caught on despite being a free and effective layer of protection.

Here’s how they work. You sign up for the program (MBNA, Citibank, and PayPal all have them to name a few.) and download their software. Enter your credit card info, and generate a new number whenever you want to make an online purchase.

Depending on the program, the new number will be one-time use, have a small spending limit with an imminent expiration date, or will be able to be used multiple times but only with one merchant.

Your actual account number will only be visible to you and your bank. The merchant never sees your number and can’t retain your information in his database. This way, hackers will only be able to see your temporary number, which will be useless to them.

So, why haven’t virtual credit cards caught on? Many consumers find them to be a hassle, particularly when you’ll only be liable for at most £50 if your actual credit card is stolen. However, credit card theft can turn into full-blown identity theft when your credit card information is matched up with other information about you that is floating around on the web.

How to benefit from credit cards

The questions above will take you through to the right plastic. However the boon of credit cards doesn’t stop there. It’s possible to use cards to make profit and to play with them to get added advantages. For those who want to step it up a level, read on….

Are you debt-free? Take revenge and make free cash

It’s simple; if they lend you money at 0%, you can save it and earn interest on it. There are a range of mechanisms for getting the money into your savings account quickly and easily.

Substantial cash is available from this, but it should only ever be used by those with a good credit history, no debts, who aren’t planning to borrow and prepared to make a little effort.

Store cards are the devils debt, so be devilish with them

Store cards are rightly castigated as evil beasts, a huge proportion of them charge a hideous 25% plus in interest, and even the best of them are not better than average high street credit cards. This leads to one simple rule…never ever ever use these cards for borrowing on, in other words if you use it, ensure you pay it off in full at the end of the month.

If you do need to borrow to spend, then use the Best Credit Card For Spending On. If you already have debts on a store card, then you can simply move them somewhere cheaper using the best Balance Transfer Card them.

Yet there are a couple of reasons to have a store card, again providing you never, ever, ever use them for borrowing on. Ooops nearly forgot, I don’t know if I’ve mentioned it before, but if not let me just re-iterate to make it plain, never, ever, ever, ever borrow on a store card.

• Membership benefits. Many store cards have special store card holder evenings and offers, a bit like a membership club. And there’s nothing wrong with keeping a store card just for this.
• Initial discount offers. Most store cards offer a bribe for signing up – such as 10% off the first time you spend on it. Hold off joining until you’re ready to buy something RRR-EALLY expensive. Or to be even more cunning, ask friends & family if they want anything too (make them give you the cash), then get the discount but pay off the balance in full so there’s no interest charged. And if you bought your friends stuff, they can always sign up, get a discount, and return the favour.
• A back door trick. The final good use for store cards is if you’re locked out of the house late at night….

Yet do remember never, ever, ever borrow on a store card.

The right credit card is the cheapest way to spend abroad

Trip abroad and it’s exchange rates that count. Using the right card is the cheapest way to spend, as the rates are based on the Visa and MasterCard wholesale rates which unleash bulk buy foreign currency at hugely beneficial terms.

Yet most card providers snaffle the benefits by ‘loading’ exchange rates and adding up to 3%. Plus take cash from an overseas hole in the wall and there are withdrawal fees e.g. Capital One charges 2.5% or £2.50, whichever is higher.

However there are some credit cards that specialise in overseas use, grab one of these, just for tripping abroad and you can cut your holiday spending cost by 6%.

Credit Card Protection

Credit cards are in many ways superior to their debit card equivalents when it comes to their protective powers. This manifests in a number of different ways:

Legal Rights. If you buy something that costs more than £100 and less than £30,000, and partially or fully pay for it on a credit card, you gain a valuable legal protection known as ‘section 75′. This means the credit card company is equally liable with the retailer if you have a problem with your statutory consumer rights.In other words if you buy something and the company goes bust, or it isn’t fit for purpose then you can go straight to the credit card provider. This is especially powerful if you’re buying overseas, or from a foreign website, as it’s much easier to track down and contact a credit card company than a shop overseas. It’s important to note, this protection only applies to credit and not debit cards.

Internet Spending Protection. The Cahoot credit card has a special scheme to help protect those spending on the web. The Cahoot webcard generates a new number for every transaction, making it very difficult for you to be defrauded. For those who regularly spend on the net, it’s worth adding it to your credit card arsenal.

Payment protection. Some cards choose to offer an additional ‘purchase protection’. This reimburses you if the goods are lost, stolen or accidentally damaged. For example, it covers £50 to £15,000 worth for the first 90 days. If you’re buying something expensive, it’s well worth using this.

Travel Accident Insurance. Many cards also have free travel accident insurance with £50,000 to £250,000 worth of cover for accidents on planes and hire cars booked with them. It’s important to note this isn’t the same as travel insurance; it’s a massively more limited cover. Some platinum and gold cards do include full travel insurance, but ensure you pay for the entire holiday, including the deposit, with the card to qualify.

ID Fraud protection. One or two credit cards have started offering ID Fraud protection as part of their benefits. This means you’ll get access to their help lines if you have a problem. As you don’t need to use the card to be protected, and the help applies even if the ID fraud doesn’t impact the card, it’s worth having.

Credit Card Minimum Repayments

While paying only a few quid a month off your credit card bill sounds good, it’s very dangerous and it can leave you in debt for years. Credit card minimum repayments are designed to make your debt last longer and longer; and make lenders more money.

Minimum Repayments: Back to Basics

Repayments on credit cards are confusing because the amount you repay doesn’t depend on the interest charged. So let’s start with a few basic definitions.

• The interest rate. This is the cost of borrowing money. Borrow £1,000 at 20% APR over a year and you’ll be charged £200 interest (20% of £1,000).
• The length of borrowing. The longer you borrow for, the more interest you’re charged as 20% APR means you’re charged 20% of your outstanding debts EVERY year, plus interest on the interest. This is crucial with minimum repayments, as by only repaying the minimum, you’re effectively borrowing for longer and therefore paying much more interest. In a nutshell the quicker you repay, the less it costs.
• The minimum repayment. Unlike mortgages and loans, with credit cards you choose what you repay; the more you pay the faster the debt disappears. The only restriction is that there’s always a prescribed minimum repayment; the lowest amount you must repay each month to avoid a fine. Rather than a fixed amount, it is usually 2% or 3% of the outstanding debt, with a £5 minimum.

Why minimum repayments are dangerous

Our aim is diametrically opposed to that of credit card companies. We need to repay debt as quickly as possible; they want to keep us perpetually repaying our debt and earning them interest. Minimum repayments are designed to do just that.

The important thing to understand is that as the minimum is a percentage of your outstanding debt, then as your debt decreases, so does the amount you repay. This means most of your repayment usually goes just to paying that month’s interest, rather than actually decreasing the amount you owe.

All of this has some startling consequences when you work out the numbers.

The Example: Bob Smith

Let’s take a look at Bob’s debts.

• Credit Card Interest Rate: 17.9% (pretty standard).
• Outstanding Balance: £3,000.
• Minimum Payment: The higher of 2% or £5.

Sadly Bob’s strapped for cash and therefore can only afford the initial £60 minimum repayment, so the amount he repays reduces each month. As the table below shows, at first there’s not much difference; at the start he pays £60, then a month later £59.60. Yet after a year he’s only repaying £56 and soon the repayments plummet – meaning the debt lasts and lasts and lasts.

How much you’d actually be paying off

The impact of this is huge!

The fact Bob’s paying less each month means the interest he owes isn’t just adding up, it’s compounding at hyperspeed. In other words, there’s interest on the amount owed, then there’s interest on the interest, then there’s interest on the interest on the interest….. I could go on, but it’d be a very long sentence, so I’ll stop there. All this interest means most of his repayments don’t actually pay of any of the money he owes – it just repays the interest.

Even if Bob never spent on the card again, and just made the minimum repayments, it’d take him a total of 40 years and 7 months to pay off and cost £6,300 in interest.

The easy three-step solution

There are two main reasons most people make just the minimum repayments. The first is because they simply don’t know how damaging it is; if that’s you, just increase the amount you repay immediately and the problem’s solved.

Yet for most it’s because they simply cannot afford to pay any more than the minimum. Well hopefully the rest of this site will help you through that, and I do suggest doing a decent budget.

Step 1: A simple trick to beat the minimum repayment trap

There’s a remarkably easy and powerful solution to all this. The whole ‘minimum repayment’ trap is based on the fact that the more debt you’ve repaid, the lower your repayments go. So to stop that, simply make a fixed repayment based on what you can afford; rather than allowing the repayment to decrease each month.

An example helps it make sense

Going back to Bob above, with his £3,000 debt at 17.9% interest, with minimum repayments of 2%. In the first month his minimum repayment was £60. If instead of just paying the minimums he repaid this £60 every month, the scenario would change radically.

Making minimum repayments it’d take him 41 years to pay off the debts and cost £6,300 in interest, yet repaying a fixed £60, he’d clear the debt in just 7 years and the interest cost would be only £2,100; a huge saving of over £4,000. Of course, if he could afford to pay even more each month, he’d be even better off.

What a difference ‘the pay’ makes

£3,000 debt at 17.9%

Of course this assumes Bob doesn’t do any more borrowing. A good thing as anyone in debt, only able to afford the minimum repayments, needs to drastically cut back on spending and avoid all new borrowing.

Step 2. Reduce the interest you pay

If the interest rate you’re paying is lower, more of your repayment goes towards decreasing the actual amount you owe, rather than just servicing that interest. Minimising the interest just involves doing a balance transfer; this means you can shift debts to another card at hopefully a cheaper rate of interest.

Step 3. Direct Debit Dilemma

Always set up a Direct Debit to automatically repay credit cards as it means you’ll never be fined for missing or making a late payment. Yet on Direct Debit forms, the minimum repayment option looms large as it’s by far the most profitable for lenders.

Instead, if you can, repay a fixed amount (as discussed in step 1), though sometimes the form mightn’t allow you to specify this. If that’s the case, just write it in anyway, and then call up to confirm it’s done; the credit card company should honour it.

Those who really can’t guarantee repaying more than the minimum every month shouldn’t panic. Just set up the minimum repayment by Direct Debit, but remember there’s nothing stopping you making other payments by cheque or from your bank account on top. The real danger is getting into the mindset that “I’m paying my bill” just because you’re repaying the minimum, always try and pay more off whenever you can.

The exceptions to the rule

Having driven the fear of living hell into you with the above, you may be a little surprised to read that there are times that making only the minimum repayments are good.

• When you’ve other more expensive debts

A golden rule of repaying debt is always put as much cash as you can towards repaying the debts at the highest rate of interest. This means you should make only the minimum repayments on all others.

• Stoozing

For the extremely financially savvy who are manipulating the credit card system to make free cash, then paying just the minimum repayments is the right move. Here if you’re borrowing at 0%, and are earning money on the cash lent to you elsewhere, the idea (contrary to all other times) is to maximise your borrowing.

• To ensure you don’t get a credit card charge

If you’re the type of person who may miss a payment or are late, not only will they fine you £12 a time, it is a HUGE smack to your credit rating; plus you can lose any cheap 0% or other deal you have.

Therefore to ensure you never again miss a payment, set up a monthly Direct Debit even if only to pay the minimum.

Setting up this payment ISN’T the same as me saying “only pay the minimum”. This is a strategic move to not get a fine. When you get your statement, there is nothing to stop you paying as much as you can on top of that via web, phone or cheque to clear your debts.