What I really like about personal finance is that there are no straight forward answers. Each financial product has its pros and cons. While several people debate the usage of payday loans I think that sometimes, it could be a good *temporary* solution.

In order to have a clearer point of view on Payday Loans, I thought of reviewing their pros and cons. While you can get your money in no time, there are little bit more to know before you apply for a guaranteed payday loan:

Pros of Payday Loans:

Getting your money quickly

Obviously, the biggest advantage of applying for a payday loan is to get your money faster than your pay check. Most companies are able to give you access to your money within 24 hours. When you are in the need of money, this is quite useful.

Gives you a break to find a better financing option

As I previously mentioned, payday loans can give you a quick option to access to money. This will give you additional time to find a better financing option (maybe try a 0% apr balance transfer credit card or a consolidation loan?).

Skip late fees

If you are about to pay fees because you are late on your bills, applying for a payday loan can be a good solution. Sometimes, the late fees are higher than the payday loan fees. Therefore, you would *save* money in your transactions.

No need to supply excessive amount of documents

Payday loans companies try to keep it as simple as possible. Therefore, you don’t have to fill a ton of paperwork to access your money.

Cons of Payday Loans:

It is expensive

Interest rate and late payment fees on such loans are exorbitant. If you apply for a payday loan, you better have a plan to pay it back before you get the money. If not, you may regret your decision when you look at how much it has cost you .

Not using the money for the right purpose

Some people use this option to get money quickly but don’t think about the long term consequences. This is not free money, this is money taken from your future pay check. Therefore, if you don’t use it as a temporary financing tool, you will definitely end-up into bigger financial problems.

Loan cap

Depending on where you live and the size of your pay check, you can have a loan cap that goes from $300 to $1500. Therefore, if you need additional funding, you are better off looking at other financing options.

This post was provided by Online Cash Advance

You will probably wonder what I have against Dave Ramsey to write two full post against this personal finance guru. Well I think over the years, Dave Ramsey got some fog into his glasses and don’t see quite clear anymore. I sometimes have the feeling that since it is part of his sales pitch, Ramsey go against banks and financial advisor a little bit too much these days. It’s not because a bank is offering a debt management solution that it is automatically wrong.

While I explain while I disagree with Dave Ramsey in regards to not paying your highest interest debt first. I found another point of debt management where I have to disagree.

On Ramsey’s website, he is saying that consolidating debt is not a solution to them off. He actually says that it only reports the problem later in time.

I have personally seen people getting squeezed by their debt and asking to remortgage their property in order to pay them off. What happened after has been described by Dave Ramsey: they continued the same way of living and get into more debts instead of using their free cash flow to pay them off… disappointing isn’t?

This is exactly Dave Ramsey’s point; if people are not serious about paying off their debts and managing their credit, there is no point of consolidating their debts!

But when you think about it, if you are not serious about taking care of your personal finance and manage your debts like a big boy, consolidation loan or not, you will end-up losing everything anyway. The only difference is that you would lose everything sooner without the consolidation loan

On the other side, if you are serious about paying off your debts and taking back your life, consolidating your debts will bring several advantages such as:

- Fixed monthly payment (compared to small payment required on credit cards).

- A known amortization (you will know exactly when your debts will be completely paid off.

- Usually smaller payments (because you will amortize it over a longer amortization period).

- Smaller interest rate (compared to regular credit cards for example).

Therefore, if you consolidate our debts and you cancel your credit cards, you will become in a much better financial position. In the end, it is a matter of getting serious about debt or not. However, there is nothing stopping you paying less interest on your existing debts once you have made that choice

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Whoa, this is a huge statement in this Monday morning! What am I thinking; attacking of the most popular personal finance guru; Dave Ramsey? Who am I to critic his way to pay off debts? Well, I’m simply a guy that don’t think the same way

While surfing Dave Ramsey website and listening to his Ramsey Radio Show, I found the “myths of personal finance” (this is at the bottom of his website). This is where Dave Ramsey provides a group of myths about personal finance and how things should be done according to the “Ramsey way of paying off debts and managing personal finance”.

While I agree with most of his advices, I got somewhat confused about the following myth and his answers about it:

Myth: “You should pay high interest debt first”

Dave Ramsey’s answer: “You should pay the smallest debt first in order to create a momentum”.

Then, he mentioned that, according to his own experience, most people can’t pay off their debts because they don’t have the right mindset and not because they don’t have enough cash flow.

I somewhat agree with this statement as you really need to get out of debts before you can actually pay a dime on your credit card efficiently. The very first thing to do in this situation is to write down a plan of action and keep track of it.

Where I disagree with Dave Ramsey is that you can build momentum by looking at how much interest you save every month by focusing on the highest interest rate debt! If you have a credit card of $10,000 at 15%, you are better off paying is and forget about your $1,000 small credit card at 8%. If you see the 10K debt as a huge mountain you can’t climb, Dave Ramsey suggests that you forget about the mountain and that you start with the small hill (1K debt).

I think you are better off calculating how much you would pay in interest over your 10K debts if you take a year to pay off your small debt. You would probably save roughly $100 of interest every year by paying down your 10K debt. That’s probably an extra monthly payment for free! I don’t know about you, but that motivates me to pay off my highest interest debt first… sorry Mr. Ramsey

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We all know that we need to pay off our credit cards as soon as possible. However, for some weird reasons, people keep using them and pay the minimum payment. They think that they will pay their debts eventually by doing the minimum payment on their credit card bill.

If you think you will pay off your credit cards by doing minimum payments every month, please do the following step:

#1 Go on Google.

#2 Search for the keywords “amortization calculator”.

#3 Take any of them and enter your data (owing balance, interest charge and minimum payment).

#4 Through the calculator, request the amortization required to pay off your credit card balance.

#5 Cry.

You will not only take forever to pay your credit card completely but you will pay an enormous amount in interest charges. In addition to that, you will probably use your credit card for other purposes while you are paying it back. Therefore, you will create a recurring payment until your death and give your money away to a financial institution in interest charges.

If you want an idea of what it looks like, here a short example for you. Let say that you owe $2,500 on a 14.5% interest rate credit card; your minimum payment should be around $50. You will need about 77 months to pay it off. That is more than 6 years to pay a $2,500 debt!

If you look closer, you will notice that you will be required to pay $3850 to pay off a debt of $2,500. That is 54% more than your original debt!

If you can’t pay your credit card bill completely at the end of each month, we suggest that you increase your payment as high as possible. If you can, it would be even better if you could fit a regular payment on your credit cards in your budget. Therefore, if you freeze $200 a month to pay down your credit cards, you will pay your debt much faster and avoid interest to be charged for nothing.

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One day, I had the chance to meet an amazing client: He was making 400K a year, with a very high net worth and a lot of liquid assets such as investment. He was requesting a Home Equity Line of Credit (HELOC) of 350K. We pulled out his credit report while he was still in the office and we got a big surprise:

His beacon score was in the 500 and he was currently R4 on one of his bill. In fact, this credit account was sent to a collection agency for a while. I asked him why a wealthy person like him would be late on one of his accounts?

It’s a lousy ticket story! He replied.

It appeared that he was disputing a ticket for a while with its municipality but didn’t pay in the meantime. “I will pay if I don’t win my case”. The problem is that he was destroying his credit report at the same time.

In fact, the amount of the debt owed doesn’t matter when it comes down to bad credit rating on your credit report. If you owe $35 to a cell phone company or you owe a $250,000 mortgage, it’s exactly the same thing.

The important factor on a credit report is time. IF you have been late for more than 4 months, you will automatically show a R4 on your credit report.

If you are disputing a bill with any company, you are better off paying it and then engage procedures. You might think it’s not their money as you are right. But in the end, you will be penalized severely on your credit score for a small unpaid bill.

If you pay upfront and it has to go further, you will also be able to show good will at the very beginning. So you are not only helping preserving a good credit score, you are helping your case as well.

You may think that the company you are going after might not listen since they got paid. But in the end, can you tell me what really worth a few hundred bucks for a multi billionaire company? Not much anyway;-)