There are advertisements all over encouraging you to get a payday loan if money is tight. There are often situations where you need money quickly, but you don’t have any way to get it before the next payday. Still, you wonder — what is a payday loan?
A payday loan is a quick cash solution for people who have a short-term cash flow problem. The amount of a payday loan generally ranges from $100 to $1500, and is made for a short period of time – usually no more than one or two weeks.
The loan is unsecured, meaning there is no collateral, no physical item that the company has to be sure the customer pays back the loan. This is in contrast to a pawn shop, for example, where the customer leaves jewelry, a stereo, or some other item in exchange for a loan.
A payday loan generally operates like this. The borrower is short of cash, but will be getting a paycheck in the next two weeks. He or she goes into a payday loan company and writes a check for the amount of the loan they want, plus fees. The customer postdates the check for one or two weeks, depending on the length of the loan.
When the borrower gets paid, he or she takes the cash to the payday loan company, pays them and receives the check back. If the borrower does not show up with the cash, then the company will deposit the check. At that point, the money needs to be in the bank account or the borrower will pay fees for insufficient funds from the bank and maybe more fees from the payday loan institution.
There are some cautions to keep in mind if using a payday loan. First, be sure you are dealing with a reputable institution. Payday loan companies should be licensed with the state. You can check with the state Department of Financial Institutions to check the status of the company you are considering. There are many cases of fraud in payday lending, and you want to avoid those who are dishonest.
Pay careful attention to the fees and penalties. They vary widely between institutions, and some charge as much as 300 to 500 percent on these short loans. Shop around, and be wise.
You should know exactly when the loan is due, and pay it on time to avoid extra fees.
Payday lending can help out in an emergency, but it is a very costly way to borrow money. Many people get pulled into a destructive cycle with payday loans, so be careful.
Credit scores are the numerical means that a credit-reporting agency uses to determine the credit worthiness of a particular person. There are various terms used to refer to a credit score, including a Beacon score. Many people don’t ever know their score until they apply for credit, and even then, they don’t know what it means. They often wonder, What is a good Beacon score?
Credit scores in general let a lender know how likely a person is to repay their debts. Computer programs, called algorithms, are used to analyze a person’s debt load, available credit, credit repayment history and bill payment history. By comparing, compiling and interpreting this information, the computer program comes up with a number that gives the lender a general idea of how good of a risk the potential customer is. The higher the credit score, the better chance that they’ll repay the debt.
This score is also used to help a lender determine what interest rate to give a particular client. The higher the Beacon score, the lower the interest rate. A credit score is an objective measure, so it does not consider race, ethnicity, age, or gender. For this reason, many people believe it to be a very objective measure and it is the favored means of determining lending.
The largest and most used model of determining a credit score is developed and maintained by the Fair Isaac Corporation, or FICO. Many times the credit score is known generally as a FICO score, even though it may actually be one of the derivative scores, such as the Beacon score, that is based on the FICO measure.
So what is a good Beacon score? It is a high score as calculated by the Equifax credit reporting agency, one of the three large credit agencies in the United States. Equifax uses Beacon, Beacon 6.0, Beacon 96 and Pinnacle credit scores, calculated with its own formula and statistical methods. Still, it is based on the Fair Isaac model.
The average Beacon score is about 678, meaning half have below that score and half above that score. This score would not garner the best interest rates or loan terms. A score above 750 would produce the top terms on loans, provided all other items in a person’s file are positive (ie: the person is employed and has a good income history).
Many lenders take an average of two or three scores before making a lending decision.
When you file for bankruptcy, many people have the mistaken idea that you lose everything at once. However, this is not necessarily the case. The basic idea of bankruptcy is that you are given a chance to start over and rebuild. The idea is that if you have absolutely nothing, then it is not likely that you will be able to recover. So what can you keep in bankruptcy?
In a Chapter 13 bankruptcy, there is a restructuring of the obligations. Usually you keep all the debt, only at a reduced amount, reduced interest rate, or negotiated settlement. In this case, since you are keeping all of your debt, you also keep all of your assets. This is a generally acceptable formula. The court will take your assets into account when creating the Chapter 13 agreement.
In Chapter 7, there are still some assets that you may be able to keep. For example, if you are purchasing a home, you may be able to retain possession of it. There are, of course, conditions to this provision.
- Equity. Generally speaking, it’s a good thing to have equity in your home. However, if you’re filing for bankruptcy, it’s not so good. If you have too much equity, then you will have to sell your home to get the equity to pay your creditors. However, if you have little equity, then you will likely keep your home.
- Payments. The one provision is that you need to be able to keep making payments regularly and on time. If you have lost your job or had a reduction in means, then the payments may be beyond your ability to pay. In this case, you will not be able to keep the home. However, the majority of people filing for bankruptcy are able to stay in the home and continue making mortgage payments.
You will also be able to keep other Exempt assets. These exemptions vary by state, and so some will not apply to you. Additionally, it matters what state you lived in when for the majority of the 180 days prior to filing.
- Vehicle. Many states have a vehicle exemption for a car not exceeding $2,500 or some other specified value. If two people are filing jointly, then the allowance is probably going to double.
- Property. Generally, the following properties are exempt. One refrigerator, a freezer, stove, microwave, sewing machine, carpets, food, clothing (not furs or jewelry, but basic clothing) and beds, including bedding.
Again, exact provisions vary by state, but all allow you to keep the items necessary to survive and recover.
While in marriage we often want to share everything, when it comes to debts, sharing may not be the best road to take. Sharing debt may cause more conflict and contention than it solves in a marriage.
While there are some real advantages to joint credit card, mortgage or utility accounts, there are also some disadvantages. Here are some answers to the question, “What are the disadvantages of having joint debts with your spouse?”
- Both people are legally and equally responsible for the debt. If one spouse has little self-discipline and runs up huge credit card bills, their spouse is still just as much on the hook for the entire amount. Even if you never use the credit card, you will be hounded by creditors as much as your spouse if they rack up debt on a joint credit account.
- It can hurt both credit scores. If one spouse accumulates so much debt that they are unable to repay it, if both spouses are on these accounts, then their scores will both be negatively affected. This will make it nearly impossible for either party to get credit, possibly meaning that the couple will be unable to qualify for a home or even an apartment rental. On the other hand, if the spouses have separate credit accounts, perhaps one will have good enough credit to still qualify for a loan.
- Relationship problems. Joint credit often leads to disagreements, since people often have different credit use habits. If one partner uses the card too often or for items the other spouse does not want to spend money on, then arguments are likely to ensue.
- Credit becomes a weapon in a divorce or argument. Although it is childish, in the case of an impending or accomplished divorce or argument, a spouse may choose to injure their partner by racking up thousands in credit card debt and not paying it. Particularly if the spender is already in credit difficulty, they really have little to lose by maxing out a card or being behind on a few payments. And even after a divorce is finalized, if you have a joint credit card, you’re still tied by money until the card is paid off completely. Sticky.
- It’s hard to buy a gift or surprise. If every account is shared, your spouse is likely to see that you bought them a birthday gift or holiday surprise. Keeping a little autonomy retains your independence.
Many people share everything when they get married: the bed, the bathroom, the bank account. It is also common for married couples to acquire debt together – they buy a home as joint signers or they buy a car in both names equally.
There are some concerns to sharing debt with your spouse, but there are also many andvantages. You’d need to consider both before signing on the dotted line, ‘til death do you part – because that debt can last even longer. Be sure to make a wise decision.
So what are the benefits of having joint debts with your spouse? Here are a few:
- You both build a credit rating. If you put all debt into one person’s name – typically the husband’s – then the other spouse has no opportunity to build a credit rating. Even if the spouse has no income of their own, they can build a good credit rating by being a joint owner of loans such as home mortgages and automobile loans. If a family makes the choice to have one spouse stay home to nurture children, then having both spouses on loan documents is a good idea.
- Easier accounting. The last thing you want to invite into a marriage is dissention, and money can cause plenty of conflict. If you have debts in one person’s name (in other words, if only the husband is on the car loan, or the credit card is in the wife’s name only) then is that spouse entirely responsible for repaying the loan? If each spouse brings in income, how is that income allocated when it comes to debts? When everything is joint, then it is easier to decide which payment comes first, and you always know how much money you have with which to work.
- Higher debt limits. If both spouses are on a credit account, then both incomes are used to calculate the allowable loan amount. This can mean you qualify for a higher credit line on a credit card or a larger home loan.
- No surprises. If each spouse is a joint owner of every credit account, then both spouses are aware of the total debt amount and know exactly what the obligations are. There is case after case of a spouse racking up thousands in credit card debt on an individual account without the other spouse knowing about it until too late. Joint accounts avoid that problem.
