Beware of Quick Cash Lenders if on Centrelink or Low Income

If you are on a low income and or collecting Centrelink benefits making ends meet from a financial stand-point can be tough. Staying on top of your finances is important in avoiding financial stress, debt and possibly putting you in a worst position.

If you are in a financial bind it is very important that you choose the appropriate solution in handling your situation or you may make things worst. Knowing where to get help and getting a good advice on the most appropriate solution is vital in controlling your finances the right way.

Many times when a person is under financial stress, they will take the first option or sign of relief offered to them and in many cases it’s just a short term solution to their issues which then become worst over time.

“Think about those who have taken out a small short term loan and ended up paying back 2 to 3 times the amount of the original loan, all whilst getting a black mark on their credit score in the process”

Taking out a loan for consolidation purposes is really only moving debt around and the habits that got you there in the first place are still there. In addition, taking out a loan to pay bills is a recipe for financial disaster as you are now going into debt for a reoccurring bill and adding another repayment to your finances. The list of situations on when a loan can be ill-advised can be quite lengthy.

There are many excellent solutions available to help low income earners and welfare recipients with financial issues. This can range from budgeting assistance, benefits to ease the pressures of bills and loans for various situations. These services can help avoid a situation like the above.

Loans to avoid or be very wary of

While short-term loans have their place, they are an expensive way to get a relatively small amount of cash. In addition, if you have any issues with repayments the costs can sky rocket. There have been numerous horror stories throughout the media on the issues with short term payday loans.

The problems have been so severe that the government had to step in to regulate the industry. As of March 1, 2013 loans of $2,000 or less that have to be repaid in 15 days have been banned.
Learn more here.

With the heavy regulation, many of these loan providers have amended the marketing to try and separate their business practices from the negative publicity of the “Payday Loan” term. Below is a list of the type of rebranding they have used to bring in customers:

 
The above is just a small sample of the type of terms used to advertise to potential customers without using the term “payday” which has a negative connotation attached to it.

At the end of the day, it is important to carefully review any type of loan contract. Become familiar with the costs, terms and penalties should you have problems with repayments.

*A good tip or tactic to use before taking out any type of loan is analysing the cost to obtain a loan versus the benefit. This type of rationalising has helped many individuals and families make smarter financial decisions as it can be applied to anything – it essentially looks at things from a risk/reward perspective.

As an example – Is it in my best interest to borrow $500 via a payday lender and pay them around $120 to do so? Paying someone $120 to borrow $500 for a couple of weeks seems extremely high. When looked at like this many might think twice about borrowing and look elsewhere or make do with what they have.

The fee figure is base off of a 20% establishment fee and a 4% monthly fee on principal over 20 days

ACTUAL alternatives to payday loans

As mentioned earlier, there are numerous services to assist low income earners and welfare recipients with their finances. These services are not only there to help but have been specifically created for those on a low income or unemployed.

The organisations that provide such services include non-profits, churches, and corporations along with local and federal government initiatives.

Below is a list of resource based on circumstance, due note that some organisations may provide multiple services beyond the main service mentioned here.

Low Income Loan Options – This is an internal link which outlines a few different benefit and loan options that are readily available to low income earners.

Financial Counselling Australia – They can assist with most money matters and provide free independent and confidential help.

Good Shepherd Microfinance – They provide a range of financial services including low or no interest loans along with a great savings program

General Financial Information – Money Smart is a government initiative which helps Australians of all walks of life with financial education for most situations.

Image courtesy of Stuart Miles / FreeDigitalPhotos.net