For many people today, money has never been tighter. While the economy and employment are on the way down, the price for gasoline and other basic needs are on the way up. A lot of Americans live from paycheck to paycheck, broke on payday waiting for the next check. The problem with living this way is that if something unexpected happens (and it does occasionally) then you are unable to fix the situation if it requires a financial expenditure. Things like a flat tire, medical expenses, electric bill disconnect notice, and other urgent matters come to mind.

One option people take is to sign up for a payday loan. This is where a company will lend you a lump sum of money (usually at a max of $1000), and you agree to pay them back within a week or two, along with the accrued interest (which can be as much as 25% for the term and even as high as 1000% yearly). If you establish a good track record with them, they will gradually raise your credit limit as you go. Normally, the requirements are a bank account in your name, a verifiable place of employment with direct deposit activated, and legitimate identification. Once you supply them with this proof, they deposit the loan amount into your bank account on the following business day. The repayment is automatically debited from your account on the due date.

This all sounds great doesn’t it? Well, don’t be so sure. These loans are not for everybody, especially not for people that are awful with money and have trouble paying their bills. It is not a coincidence that some of these payday loan companies (not all of them) don’t check credit before approving you for a loan. They actually prefer people with bad credit. Why? Money, that’s why. People with bad credit will likely request one or more extensions on the repayment date. These extensions can be very costly, some of these companies are outright criminals. In some cases, you would be better off going to the mob for a loan. If you don’t think that you’ll be able to pay off the full loan amount plus all interest in the allotted time, then you shouldn’t consider this type of loan to begin with. These extensions can turn into a vicious cycle that quickly spirals out of control. You can find yourself ultimately paying three or four times the amount of the loan itself in interest.

Payday loans can be a quick fix for you when you know for a fact that you will be paying the money back at the first due date. If there is any doubt, then you risk getting caught up in the endless cycle of penalties and interest, always paying the interest and not the balance. This is exactly what some of these companies want you to do, more money in their pocket. You are better off borrowing the money from a friend or relative, or even taking a cash advance on a credit card.

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If you find yourself stuck with a poor credit rating, and many people do, you probably have given up on the thought of ever owning a credit card again or getting approved for a department store credit card. The credit rating system can be a self-consuming paradox, because you might not be able to repay your debt due to economic circumstances. Not because you’re a dead beat, but because that is life sometimes. Then when you’re unemployed, you need to eat somehow, so you use your credit cards to live on in the hope that you will get a new job soon and pay it all back to catch up. If only that were true right?

What really happens is that you finally get work again, but are reluctant to hand over all of your new money to the credit card companies. Believe it or not, they WANT you to do this. The more screwed up you are, the more money you will owe them. Even if they know you’ll never be able to pay it back, they want to get as much debt on the account as possible because it will generate a higher cash payment on your account when sold to debt collection agencies.

So you can see that this cycle could and does go on forever and ever until you die or go bust. One option you have when you are in the credit crapper is to get a secured credit card. This is a credit card that is issued to you only after you have sent the issuing bank a security cash payment for them to hold against the credit card account. The amount of the security deposit is often the exact same amount of the credit card limit. That tells you one thing, they don’t trust you for anything. This way if you don’t pay your bill, they just use the security deposit to pay it off and then cancel the account altogether.

Secured credit cards normally carry horrible interest rates, like 26% and even more sometimes. This is not the reason you want this credit card though, and everyone knows that. You use it to show the bank and credit reporting agencies that you can pay your bills on time now.

The best advice to follow when it comes to secured cards is to NOT use them like a regular credit card. DON’T go running the card up to the very limit and then be late with the next payment. This will only worsen your credit rating. Use it once or three times a month to buy something for $50.00 and then pay it off every month. Before long, they will likely send you an offer for a credit limit increase. That is up to you, if you feel you can handle having more credit then by all means go ahead, just keep in mind what got you to that point to begin with.

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