Should You Use a Money Advance App for Christmas Shopping?
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Do You Need to Use a Cash Advance App for Christmas Shopping?
Cash advance apps offer a boost at the holidays however, some consumer advocates believe they can lead to the cycle of credit.
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The cash flow may be squeezed during the holiday season when bills must compete with items like travel and gifts for space within your spending plan.
Paycheck advance applications provide fast cash. They allow you to borrow money from your expected earnings for low or no fees and pay back the loan from your next paycheck.
Though that offer may seem appealing to shoppers during the holiday season consumers, financial experts say the apps can lead to a spiral of credit. Here’s what to know about using loan apps during this season, and strategies to get through the holidays without taking out loans.
The dangers of cash advance apps
They’re quick and simple. If you’re employed and receive an income stream then you’re likely to be eligible in advance.
The majority of apps restrict advances to $200. The amount you are able to be able to borrow is determined by your earnings and expenses. The applications require access to your bank account to transfer funds to pay for the loan.
The withdrawal can trigger an overdraft penalty when you don’t have sufficient money in your account says Lauren Saunders, associate director of the National Consumer Law Center. Certain apps have acknowledged this risk in their terms of service , which state they’ll try not to cause an overdraft — but they don’t guarantee it.
The advances are and carry the same risks, Saunders says. Some borrowers may not be able to afford the full repayment on top of their regular expenses, leading them to be in the cycle of debt.
“People frequently find themselves short on their paycheck or hole in their bank account , which pushes them to reborrow,” she says.
University of Northern Colorado graduate Michelle Adjei has occasionally used one popular app, , to make payments for bills as well as Amazon purchases. Adjei said that her experiences with Earnin was good, but she wouldn’t recommend it if you struggle to cover necessities.
“If you’re using it to help you’re already behind, then you’re only going to get worse and it will probably make it worse for you since you’re constantly looking to catch-up,” She says.
How to safely use a cash advance application
Is buying a gift a good reason to get an advance? That’s up to you, says Saundra Davis, founder of Sage Financial Solutions, a San Francisco Bay Area-based organization that focuses specifically on coaching financial professionals. It is possible to use an advance to pay off bills or to purchase gifts but neither is wrong.
“No person can decide that for you, everyone is responsible for their own decisions,” she says. “But to make a an informed decision it is important to comprehend the decision is being made.”
This means you need to figure out how a loan application will impact your financial position and how it compares with other options, she adds.
Noelle White says she keeps an eye on her cash flow, which is why using Earnin for a couple of emergency situations hasn’t led her to not pay any bills.
“When I make use of it, I typically try to ensure that I’m preparing the next check and making sure the money is there and I’m not going end up in bad way,” she says.
Cash advance applications should be a last resort, says Atlanta-based certified Financial planner Tania Brown. If you decide to use one she suggests keeping the amount you can advance to the amount you’ll need, and then deciding ahead of time the best way to handle expenses with a smaller paycheck.
“If this is your final resort, come up with an amount that you will not exceed, then create a plan as to how you’ll make this payment, then develop a plan as to the way you’ll save money,” she says.
Other methods to make it through the holiday season
It’s not a good idea to begin saving for the holidays that are coming up, but Brown says there’s still time to .
She suggests cutting services or subscriptions that aren’t needed for a short period of time to free up space in your budget.
A pet sitting or hanging holiday decorations for your neighbor, can also get you extra cash, she says.
“There are methods to do this, it’s just thinking using a different lens” Brown says. “So instead of borrowing lens, through the earning and saving lens.”
If rearranging your budget isn’t enough, think about reducing your holiday plans. It could be the perfect occasion to speak with family members about whether gifts can be something other than tangible gifts, Davis says.
For instance, the presents she gives her grandkids do not come with bows. Instead she lets them see the lights of Christmas or creates crafts with them.
“Understanding what is most important to you in the time of gift giving is vital,” she says. “Would the person you love want you to be in financial trouble to buy them that present? I’m guessing not.”
Find other options for borrowing during the holidays.
About the author: Annie Millerbernd is a personal loans writer. Her writing has been featured in The Associated Press and USA Today.
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