| July 17, 2013

The worst possible ways you can borrow money

Borrowing money is a part of everyone's life, from student loans to a mortgage., but we have a few tips how to avoid this. Some people are able to handle this responsibly, but it can lead to trouble for others. 

To avoid having to sit down with a credit counseling agency to come up with a plan to pay down your mountain of debt, it would be wise to limit borrowing and avoid any of these methods of obtaining money. 

Payday loans: One of the worst ways you can borrow money is by obtaining a payday loan. This is a form of short-term financing that enables you to receive a loan based on a percentage of your next paycheck. This industry has little regulation, which means the financial institutions offering these loans can charge high fees and interest rates. If you are falling behind on your essential bills, it would be a better idea to contact the companies to ask for an extension instead of taking out a payday loan to cover them. 

Title loans: Another borrowing method you should avoid is title loans. As long as you own a car that still has value you could be eligible for this type of financing. To obtain funds, you hand over the title to your car and the lender holds it until the loan is repaid in full. Much like payday loans, this form of financing comes with very high fees and interest rates, and could lead to you losing your car if you are unable to repay the loan. For this reason, title loans should be avoided at all costs. 

Pawnshops: With the popularity of the History Channel show "Pawn Stars," you might believe that this is a good place to turn to for a loan, but that isn't the case. To obtain funds from one of these shops, you hand over an item with value and they hold it as collateral. If you don't pick up the item, it is their's to keep. However, the rates on these loans can be just as high as payday loans – 10 to 20 percent – which is why they should be avoided. 

Cash advances from credit cards: A surefire way to add onto your pile of credit card debt is to get a cash advance. Generally, banks give you the option of using your credit card at the ATM for cash purposes, but this should be avoided at all costs, as interest rates on these can be as high as 25 percent. 

April Lewis-Parks has more than 15 years of experience in the financial sector, she is a certified financial counselor, and a consumer affairs advocate. As the director of education and public relations for Consolidated Credit she is dedicated to generating awareness about personal finance issues and acts as their consumer affairs advocate. As host the of MissMoneyBee.com, she promotes financial education and offers timely and informative personal finance articles to educate the public.

April’s promotional efforts can be seen in past issues of the New York Times, Washington Post, Newsday, Consumer Reports, the Business Journals, Money Magazine, Glamour, Cosmopolitan, Family Circle, among others.

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