You’ve seen the ads everywhere. On the internet, in your mailbox, in your e-mail, on TV, and on the radio. Payday loans! Why, it sounds so simple. You just show the lender your pay stub and voilà, they cash advance you that amount of money to hold you over until your next paycheck.

Not so fast. The nation’s consumer protection agency, the Federal Trade Commission, says that no matter how simple these small, short-term, high rate loans are, they come at a very high price to borrowers. It is wise to use this only as your last resort, and explore all other alternatives before obtaining a payday loan.

What are some of the alternatives to payday loans?

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• Try your friends or family. We know this isn’t the easiest thing to do, but if you’re certain that this is only a very short term loan—specifically until your next paycheck– and that you will be able to pay it back in full, find someone who won’t mind loaning you the money.
• See if you can get a small loan from your credit union, a community bank, or a local community-based organization. We know dealing with banks is not the easiest thing these days, but if you have an existing relationship with one, it doesn’t hurt to ask.
• Contact your current creditors as soon as you see you are running short on funds. Many of these institutions are willing to work with consumers whom they believe are acting in good faith. These days, this is particularly true with mortgage lenders. If they offer an extension, make sure you understand the details of any late charge, additional finance charge, or increased interest rate.
• Do you have overdraft protection on your checking account? If you don’t set it up. The interest rates on using your overdraft protection will be significantly less – and the loan itself less work – then a payday loan.
• It may be too late for your immediate needs, but take a look at your budget. Don’t have one? Make one. Write down everything you spend money on. This should not include only just your bills; you need to also take a look at all your minor expenditures, like your daily stop at Starbucks, for example. If you have trouble with this, there are numerous local consumer credit counseling services that will help you for no cost or low-cost.

The take away point is: try every alternative first. Then, if you must use a payday loan, make sure it is the smallest loan amount that you can get away with, and be certain, absolutely certain, that you will be able to pay it off with your next paycheck.

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