How to Manage Payday Loans As Banking Changes

Consumers and the economy

Mary Dannisch, a secretary in Plymouth, Virginia, said, “Since the recession we’ve used payday loans to cover our bills month after month … saving via CDs and savings accounts just aren’t what they used to be.” Dannisch is talking about the noticeable change in the financial industry since the recession. While in past years people could deposit their money and get a reasonable return on investment, post-recession banking isn’t the same when it comes to saving.

In 2009, interest rates fell. Bank savings accounts, CDs and money markets generally followed the Federal funds rate and that has ranged between zero and 0.25 percent since the end of 2008. Richard Barrington, banking analyst for, stated, “The Fed is going to be slow to raise rates for fear of choking off the recovery.”

The future of borrowing

The lowered interest rate will benefit 2010 borrowers. However, there is still a question of whether lending rules will be as strict as they have been in the recent past. Banks are not lending to many customers, and the ones who can get funds are getting much less than they would have in the past.

About 20 percent of credit card holders reported recently that their credit limits were cut. Last year this time, just 7 percent were in the same predicament. The good news regarding lending is that with more regulations, getting a loan should be a fairer process. Legislation is in place already to limit bank’s tactics of higher interest, fees and slashing limits.

How to manage

Barrington has some suggestions for consumers looking to save their money in banking institutions. First, he says that soon banks will start to “pick up” and “pay more for deposits.” The caution here is to channel money now toward short-term investments. He added, “You don’t want a 24-month CD right now because in just eight months the interest rate could go up considerably. … Either wait or get a six- to nine-month CD. That way you can be flexible.” Analysts agree and are telling people to keep their assets liquid. The best choices right now are any FDIC-covered bank savings or money market account, along with six-month or less CDs.

Many insiders are encouraging people to think short term when it comes to investing. This will allow them to still make a return, but not risk missing out on better deals as the market opens up. Mortgage loans, payday loans, and unsecured personal loans may all be difficult to find, but if consumers have liquid assets, they can cover their bills, build up savings and still have money to invest if they are wise in making financial decisions.

Take advantage of the market

Another advantage of 2010 is the ability to shop around when it comes to investments. For example, the average return for a six-month CD is 0.6 percent in the Tulsa, Oklahoma area. On the other hand, FNBO Direct is paying 1.5 percent on its online savings account and Nexity Bank is offering a six-month CD at a rate of 1.65 percent. Barrington added, “Shopping around is the number one thing customers can do in this economy. The internet has brought a wider variety of options with buying and now, with money management.”

The borrower

For anyone who has loans, the key is to pay them off faithfully—in particular if they involve variable rates. Bankrate’s Greg McBride said, “Rates are only going to get higher over the next few years. So pay down your credit cards and home-equity lines as aggressively as you can.” Credit card rates are expected to rise more than 1.25 points in 2010. And balance-transfers, once effective, are now going to be more costly than ever. McBride added, “Don’t count on balance-transfer offers to bail you out. What you would save on lower interest payments will be wiped out by transfer fees, already at 5 percent at several major banks.” Consumers are cautioned to pay off their debt. Short term loans or payday loans can help fund expenses, but larger loans with longer life spans should be taken care of as quickly as possible.

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