Chapter 5: Financial Alternatives

In many cases you do not have to use sub-prime credit products or fringe financial services – you have options that are less expensive, both in the short and long run.

Subprime Credit Alternatives
While it is a common reaction to borrow more when financial troubles hit, it rarely makes sense. Do not fall for misleading and enticing marketing. In the end, it will just be another, more expensive debt to deal with.

Emergencies happen – and if you need cash fast but don’t have savings to cover the shortfall, contact your financial institution immediately. They may provide you with an unsecured loan with relatively low finance fees. Other options may include:

• Turning to your existing creditors for a break. You may request a hardship plan where you make no or lower payments for a few months.

• Consider using a credit card to cover a shortfall. A cash advance is often more expensive than a credit card purchase, but still an option.

• Borrowing from a friend or family member.

• Taking inventory of your belongings and selling what you don’t need or use.

• Getting an advance on your paycheck from your employer. Check with your human resources department for specific regulations.

• Borrowing from your retirement plan. As with an advance from your employer, check with your human resources department for specific regulations.

• Cashing out or borrowing from a cash-value insurance policy.

If your credit is damaged, or you haven’t established a credit history yet, consider a secured credit card. With this type of credit card, you deposit funds into a savings account at your financial institution, and they issue you a card where your credit line equals the amount you put down. These are often excellent alternatives to expensive unsecured credit cards. While there may be an annual fee, the interest rate is often reasonable.

After you have developed a positive credit history by borrowing and repaying responsibly, you will be eligible for prime loans and lines of credit, and there will be no reason to turn to expensive financing. The best place to turn to for loans and credit cards is your credit union. As a member, their products will have the most favorable rates and terms.

Fringe Financial Services Alternatives

There is often no reason to pay extra for fringe financial services. Know your options.

Check-cashing service options
If you have been using check-cashing services because you thought it was more convenient or you feel the atmosphere is more comfortable, discuss this with your credit union representative. Part of every credit union’s mission is to help members in their community obtain the best, least expensive financial services available, and in ways that are most comfortable for their members.

If you had problems with bounced checks and your credit is damaged to the point where you can’t immediately open a traditional checking and savings account, you may have another option. If you receive a federal benefit, wage, salary, or retirement payment you can open an Electronic Transfer Account (ETA) at your credit union. With it, you can cash checks for free, and are able to withdraw money from the account the same day your check is deposited (or at a later date, if you choose). While you cannot write checks with an ETA, the credit union is a good place to get a money order so you can pay your bills.

Rent-to-own options
Before you sign a rent-to-own contract, consider other, less expensive, options:

• Use your credit card. When used as a short-term loan (under six months), the finance charges are relatively reasonable.

• Purchase the merchandise on an installment or layaway plan at another store.

• Apply for a loan at your financial institution.

• Put the rent-to-own payments in a piggy bank, wait a few months, and pay cash.

• Request that a set amount be transferred from your payroll or your checking account into a savings account. Buy what you need when you save enough.

• Seek better deals at garage sales, online auctions, second-hand stores, and the classified section of your newspaper.

Sometimes financing a large purchase just doesn’t make sense. Consider doing without. Do you really need a flat-panel television set or luxurious leather living room furniture? Some of the items you may want are desires, not needs. Buy according to your ability. If you really want the item, save for it. By doing so you won’t owe a store or lender, and you will never have to pay a penny in interest or finance fees.