When your $3,500 rooftop air-conditioning unit goes out in the middle of a heat wave, you can either melt or deal with an unexpected cash outlay. And units installed on top of a three-story townhouse with no walk-up access will cost a bit more than usual to replace.

Or maybe some creep sideswipes you at a stop sign and then drives off. Your car insurance won’t pony up until you can cover the deductible. Of course, the police never found the perp, even though you recorded his license plate number. Something tells you they never really looked.

Just for giggles, let’s say that vandals break your plate-glass windows. The repair sets you back $500 at a time when you least expected it.

All of the above scenarios actually happened to me. Thankfully not back-to-back, but they still illustrate that bad things do, indeed, happen to good people. When things go wrong, there’s usually a price tag associated with them.

Got an Emergency? Avoid Payday Loans!

Some say that bad luck comes in threes. I say that an emergency fund is a must-have. But what if you don’t have enough in savings yet?

If you don’t have the funds to deal with the emergencies that head your way, visiting a payday-loan operator may seem tempting.

I get it. Payday lenders are everywhere. They seem like a simple solution to an irritating problem. What’s the worst that can happen, right?

Gina Marie Velez found that out first-hand when she turned to payday loans during a stressful divorce. “It took me over a year to pay it off because of the ridiculous interest and fees,” she says. “They’re the absolute worst. They create a vicious cycle of debt that feels impossible to get out of. Do not ever take a cash payday loan. The interest rates and fees cause a bigger hole in your pocket than the amount of the loan!”

BBVA Compass rectuangular banner ad

Running the Numbers on Payday Loans

The average term for a payday loan lasts two weeks. Finance charges are generally $15 to $30 for every $100, equaling an average APR (annual percentage rate) of 400 percent. By contrast, credit card APRs typically range from 12 to 30 percent.

Payday loan users typically end up taking out six to eight of these emergency loans at the same location, and 66 percent of those are to cover the original loan. This is how unsuspecting borrowers get trapped into a never-ending cycle of high-cost short-term loans.

Instead of a payday loan, low-cost personal loans from your bank or credit union may be available. Knowing if you qualify in advance is helpful, and one of the best ways to figure this out is by checking your credit score. With a high enough score, you may be able to get a short-term loan at low rates. Find out your credit score from all three bureaus at once with myFICO. You can get 20 percent off by using our link.

That said, you don’t always need the highest credit score to get approved for a loan, especially with LendingClub and their low rates.

When you face an emergency and need money in a hurry, but do not qualify for a low-cost personal loan, try one of these quick ideas instead so that you can avoid the debt trap of a payday loan:

1. Sell Something

Facebook Marketplace, Craigslist, garage sales, and now apps like Letgo can help you raise cash by selling the possessions in your home. Look through your closets, your garage, or your storage units and give your things a new home to resolve your cash crisis.


2. Borrow From Yourself

If you have money in a tax-deferred retirement account, a loan of half the vested value — up to a max of $50,000, in most cases — is an option when you’re cash-strapped in the face of an emergency. There’s no credit check or long approval period; the interest rates are generally lower than credit cards; and the payments are deducted from your paycheck, which makes ignoring the loan impossible. The downside is that you miss out on tax-deferred gains, which will hamper your long-term financial planning efforts.

In short, you’ll be contributing less to your retirement fund during the repayment window.

Plus, if you lose your job, the entire balance may become due within 60 days. And if you don’t pay it off within that time, you’ll probably end up paying early withdrawal fees. So avoid this option if your employment status is uncertain.


4 Legit Ways To Get Cash Now (No Payday Loans). Facing an emergency you can't afford? A cash payday loan may seem tempting. Try these easy ideas instead — your wallet will thank you. #emergencyfund #paydayloan #certificate #personalfinance3. Peer-to-Peer Lending

Lenders like LendingClub offer short-term loans that are backed by individual investors. An applicant with a credit score of at least 640 can qualify for up to $40,000 from one of these peer-to-peer lenders. Rates vary depending on loan term, credit score, and loan amount, but the average is 14 percent. The application process uses a soft credit score pull that won’t negatively impact potential borrowers. Plus, the process is completely automated, so you can have a quote in minutes. Origination fees range from one to six percent.

4. Friends and Family

If all else fails, there’s always your family network. If you decide to borrow from friends or family, repay the emergency loan as soon as possible. Damaging your “credit” with loved ones can ruin relationships, and no amount of help is worth that.

Coming Out of the Fog

Don’t find yourself in this situation again. Take control of your finances today and sign up for Trim, your virtual assistant.

Trim securely analyzes your account and helps you cut costs where possible. Its main features range from negotiating your cable bill to finding you better insurance policies to automating your savings for that emergency fund you’ve been meaning to build. The virtual assistant can also set a payoff plan to help you get out of debt while lowering your annual percentage yield, or APR.