Don't go with blinders on when you need money this recession. Payday loans pay. (Photo: flickr.com)

Payday loans are still helping people fund expenses as most other loans are tightening up their application processes. According to the Federal Reserve, the last three months have seen banks making qualification for loans harder than ever in response to the struggling market. A Federal survey showed that 50 percent of banks have revamped their lending policies, up from 45 percent earlier in the year.

Sixty-five percent of banks said that non-traditional loans, like adjustable-rate loans and payment options, are also hard to procure. Earlier this year, only 50 percent of banks were revamping their non-traditional loan packages. Richard Yamarone, economist for Argus Research, stated “Even if you had a stellar credit history, banks were reluctant to lend in this environment.” The odds of people going into default is high considering the unemployment rate for the country hasn’t yet hit its high according to analyst.

How Are Credit Cards Faring?

Almost 60 percent of banks said that credit card loans are going through the same reworking process, making it harder for consumes to get funds. Overall, people are no longer at the liberty of using credit cards to pay off debt at their leisure. There was a time when credit cards helped to pay bills on time. Those days are gone and payday loans are replacing the typical credit card usage. In the future, most banks predict that there will be a continued deterioration in credit quality for all home and business loans, with more than 70 percent of all banks admitting their loan portfolios were less than what they used to be.

The Recession’s Cure

It is critical to spur lending once again if the economy is ever to get out of a recession. The Fed has created a record low in interest rate to persuade businesses and consumers to start spending again. This is in response to the housing boom of the former year when lenders were approving people without concern for their actual financial health. Suddenly as a result, home values plummeted and foreclosures increased drastically. Banks were in the position of having to manage huge losses.

Understandably, banks are wary of lending again. Yet without some return to normalcy on the lending front, the recession will continue. The government is working hard to stimulate lending in an effort to revive the economy. Both banks and tax payers are being targeted for aid in this difficult financial time.

Traditional Lenders Aren’t Helping

With traditional lenders being unable to help consumers, they are left to find other ways of finding funding. One way many people are making their bill payments is through payday loan companies. These are companies that set up short term loans for qualified applicants. They extend a certain amount of funds, as based on the applicant’s salary, for a short period of time to accepted borrowers. The funds are automatically paid out to the customer’s bank account once he or she is approved. Funds are then recouped on the borrower’s next payday. The simple loan process and application process is making these types of loans popular with Americans who need immediate money. With traditional loans unavailable, and with the climate of financial uncertainty for at least the upcoming year, people are happy to have the payday loan option.

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Does debt have you bound up and feeling like a police officer bound up, not able to reach the donuts? Try consolidating your debt with a home equity loan. (image from flickr)

When struggling with personal debt, you may be tempted to apply for a personal loan, payday loans or try to borrow money from other sources from time to time simply to relieve the financial pressure you may feel weighing in upon you.

In this article we will attempt to address some of the advantages and disadvantages of the various debt payment options that may be available to you to pay down, pay off  and take control of the debts you owe.

Payday Loans

Payday loans, although a valuable service for emergency funds, are not the best option for paying off or consolidating debt. Payday loans are more a source of emergency funds for dire situations, such as when your car breaks down and you need money for quick repairs or if you want to avoid a late payment penalty with a creditor.

Because payday loans usually limit you to a maximum of $1,500, it is likely that a payday loan would not be sufficient to cover and or consolidate your debts anyway. There are better options available to you that can provide you with a lower interest rate.

Withdrawals On Your 401(k)

A lot of people resort to using funds that they have put aside in their 401k savings plan. This is a tempting but ill-advised approach to debt relief.

Remember, the funds that are in your 401k are reserved for your retirement years. Using these funds to bail yourself out of financial trouble today may cause another crisis for you several years from now. You may find at retirement you don’t have sufficient funds in the account to last through your retirement years.

Taking money out of your 401k will cost you more than you think. You have to take into account how much you will be taxed for on the withdrawal of these funds plus the total amount of interest these funds would have acquired between now and the age you retire. This adds up to be a significant sum.

Home Equity Loans

Home equity loans are usually the best option for consolidating and paying off your debts. Home equity loans are obtained by borrowing against the equitable portion of your home’s value. This gives you the advantage of lower interest rates than most other options. Plus, interest paid on home equity loans is tax deductible.

When borrowing against your home equity, be sure to remember defaulting on or failure to pay your home equity loan payments can result in losing your home.

Avoid Repeating The Cycle

The biggest thing to remember when paying off your consumer credit debt, regardless of the options you choose, is to avoid repeating the cycle again by running up your credit card balances that have been paid off.

If you find that your money spending habits are habitually putting you under financial stress, you may find it helpful to work with a debt counseling service that can help you manage your finances in the future. Click to learn more about debt consolidation.