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Friday, December 27, 2013

Why millennials are using payday loans

Payday loans can be replaced with revolving credit
Secured credit is safer than payday loans
With high paying jobs few and far between, but expenses showing no signs of slowing down, there is a debt problem among millennials across the country. Studies have shown that they are not good with financial planning, struggle to cut their spending down to what they earn, and often end up finding creative ways of getting further loans. One of the results is the trend of millennials turning to payday loans for instant relief.

Obsession with discretionary spending

Many point to the fact that children who were born in the late 1980s and early 1990s are still living with their parents as being a primary reason for their financial problems. Since they are not on their own, with real expenses to take care of, they have very little idea of how the real world works. For them, money is spent on whatever they want to buy, the foods they want to eat, and the entertainment they want to enjoy. With incomes that do not match up with their fantastic expectations from their life, it can often lead to a lot of debt.

Options for loans are dwindling

Banks are very careful when handing out loans these days. Unless a person has a solid credit history, a high paying job, and/or someone who is going to be a cosigner on their loan, they are not going to give out a loan. This means that generation Y is running out of places where they can go to get more money. Credit cards are an option, but it does not take long for people to max out the cards they manage to get.

With rent prices going up, but most jobs not paying as well as they should, it is clear that there is a debt problem among people aged 18 to 34. These are people who should be setting themselves up for the rest of their lives. They should be saving money, thinking about starting families, and wondering when they will buy their first home. Instead, they have credit card debt, college loans, and other financial issues to deal with. On top of all of this, many are turning to payday loans.

Payday loans

If payday loans are used correctly, they can be a valuable financial instrument. These are short-term loans, ideal for people who need a few extra hundred dollars to pull them through until their next payday. However, far too many people do not use payday loans correctly. Too many are putting themselves in greater financial risk and trouble. They will get a loan without thinking about how they are going to pay it back a mere few weeks later.

As long as millennials are careful, and use these loans only when they have a clear method of paying them back two or three weeks later, there is no harm done. However, individuals who borrow from payday lenders knowing they will be unable to pay the loan back are only digging deeper holes for themselves.

About the author: Chris writes for his blog at The Financial Park about credit, finances, debt and budget tips and opinions. He also loves sports and being in the outdoors. You can find him on Twitter @ChrisLindsey23.

Image license: Stallio, Creative Commons

1 comment:

  1. Most people use payday loans because they can get it easily. To get a loan with low interest rate for your personal needs you should have a good credit. And payday lenders do not care of your credit score, even consumers with no/bad credit can be approved. But people often misuse payday loans, especially young consumers. When they need money they apply for cash advance from direct loan lenders and easily get in debt but they don’t know how to get out of it. Unfortunately, we all learn from our mistakes. People are not born responsible, they become responsible when they get some financial experience and know that a loan is a serious commitment.