Could you survive without credit cards

May 27, 2011 · 29 comments

Girl ninja flew in last night for her big interview today. We haven’t seen each other in five weeks and I don’t think she’d be too excited about me writing a blog post right now. That means you are getting a sponsored post today. GN leaves on Saturday so I will be back in full force on Monday.

This question may not be about choosing to have or not have (or not use) a regular credit card. Maybe you don’t have one to begin with. Maybe you were turned down because of poor credit or large existing debt (school loans, car loans, etc.). Or maybe you just want to go the Smart Route: live on your earnings and not much more.

Novel concept, living within your means. It’s how 30-year-olds buy homes with 30% down payments. It’s how 25-year-olds qualify for car loans with lower interest rates. And it’s how millions of recent college graduates are paying down their school debts: they budget to the bone and manage to do it.

But what about the emergencies? What happens when your car seizes up and the mechanic says it will come to $1300? What if you are traveling and have a medical emergency – you use a healthcare provider outside your insurance company network, saddling you with a $800 co-pay that you really didn’t need right now.

Try this other novel concept: Look into paycheck loans . This is where a lender will provide you a loan based on the size of your paycheck. You sign onto the lender’s website (an easy cash advance online will require about ten minutes of work from your computer) and make your loan request. If you are employed, have a bank account, and do not have any other paycheck loans outstanding, getting your loan request approved is almost guaranteed. A poor credit rating will not get in the way.

There are people who criticize paycheck loans, so let’s look at those criticisms here:

The interest rates are too high: This varies by state, but the critics’ calculations are typically based on holding the loan for a year. Paycheck loans are designed to be paid off in about 30 days or less.

You don’t know who you are dealing with: Look for American-based lenders versus those who operate offshore. There’s a lot more transparency with USA-headquartered easy online cash advance lenders than where you buy certain other things on the Internet.

You can get into trouble with these loans: Really? You can’t borrow more than an amount that is less than one pay period. If you get a car title loan, it can be for many thousands of dollars. There are people under the age of 25 with $25,000 in credit card balances that carry double-digit interest rates. You could do a lot worse than paycheck loans.

Managing through a tight economy might be a good thing for all of us. It teaches us to question conventional wisdom and to find the smart ways to manage our spending behaviors and our money. Things can only get better when you know more about how to do it.

(Ninja’s notes: I think if we all live within our means and establish a reasonable emergency fund we can avoid depending on credit in virtually all circumstances. I’d personally never use a payday loan service, and definitely wouldnt reccommend you using one without knowing ALL the terms. There were however a few compelling arguments for why a payday loan isn’t necessarily as evil as we all think they are. What say you?)

1 bD

So dangerous that even the government warns against borrowers not to use them…
http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt060.shtm

With APRs in the 100s rather than double digits like credit cards. (http://www.missourinet.com/2011/02/07/48742/ http://www.consumersunion.org/finance/paydayfact.htm)

Fees for each loan.
Its a personal finance disaster waiting to happen.

Maybe this post was supposed to be satire. since the sponsor wasn’t disclosed.

2 LLF

I can’t say that I agree with not having a credit card is a good idea. I posted about why I love my credit card and don’t een bother to look at the interest rate: http://livelargefrugal.blogspot.com/2011/05/credit-cards-are-my-bff.html. I think the issue is that mentality of credit as in paying for it in installment at a much later date. Also, the problem thinking that living “within your means” = “to your means”. It should be “living well below your means”. Credit cards are not really the problem. It’s the irresponsible use of it and the mentality of paying it later with money that you don’t have.

3 Lutus

Once I had saved up 6 months of INCOME (not expenses) I got rid of all my credit cards. My wife and I do a monthly budget and we try to live on cash envelopes only. I haven’t had a credit card for 2 years now and have no plans of ever getting another one. I have had multiple ‘crisis’ situations but they end up being only a $1000 or so for the most part (car air conditioner, etc). When you have a HUGE emergency fund this ‘crisis’ situations become nothing more than a line item in next months budget. As the good book says, the borrow is a slave to the lender. I won’t feel like a slave anymore once I get my house paid off. (I am 28 years old btw)

I would borrow from family or friends before ever dealing with payday loans. Or I would just let my bills go into default until I could settle with them. I would also cut my lifestyle back to ramen noodles and renting books from the library for entertainment. Or how is this for a novel exercise……put on some shoes and run around the neighborhood. But why would Americans want to do that? ;)

4 Lutus

that last post should read…..”Or how is this for entertainment*…….”

5 Rebecca

We almost never use our cards, and they have a zero balance at the end of each month. We do use them to make larger planned purchases online which get paid immediately. We also use them to bridge the gap from the time an emergency happens to the time we can access funds from our e fund, which can be 2 to 6 days. We only have one car, so if something happened, we would need to get it fixed asap, and then have the money transferred over to our checking from our e fund to pay the bill. It also means that because my husb and I each have a card, we always have one on us, so I don’t worry if my husb is traveling for work or something happens to the house while he is gone, we both have means to pay larger surprise bills right away, and can access our e fund in a timely manner.

6 Ryan

Wow. It scares me to read this on a Personal Finance site. Are you serious? Are you really serious about advocating payday loans?

The interest percentage is huge – here in the UK, we’re talking about 4,000%+. 4,000%! Sure, over the course of a month, its not too much – say you borrow $1,000, you pay back around $260 (according to Wonga).

Now, you spend the borrowed $1k on the emergency, and next paycheck comes and you owe $1,260, yet only get paid $1k. Now your in a debt spiral, as your next paycheck will be less than $700 factoring in the additional interest on the $260. Then another emergency could come up, causing you to borrow more and more money, in which a huge high interest debt spiral occurs.

How can I payday loan ever be justified?

Lets flip it around now and use a credit card. Credit cards offer more protection to consumers, and give you a month to pay back the money until your next statement is due. So if I desperately need money before payday, I simply use a credit card and pay it back after payday (of course, budgeting applies, and never spend more than you cant afford to pay).

But, what if I cant afford to pay it back? Then interest fees tend to be around 16%, around $12,50 for a $1,000 balance. Plus factor in other bonuses of credit card – freebies etc.

Advocating the use of payday loans is something I disagree with a lot, I really cannot see the benefits.

7 Ninja

Never advocated for them. read my comments at the end of the article. It was an opposing point of view. Much like I’ve posted articles in the past about credit card debt not being a big deal or why car loans aren’t bad. I dont necessarily always agree with the guest posts i get, but that’s kind of the point. Diversity.

8 Brent

“I dont necessarily always agree with the guest posts i get”

“That means you are getting a sponsored post today.”

which is it ninja? i assume the sponsored post (mentioned at the top) would be one that you received money to publish. A guest one would be one you chose to put up in lieu of your own great writing but didnt get paid and is likely something you find worth reading. This post however is poor financial advice and only a sponsor would write this as no PF blogger in their right mind would advocate these kinds of loans. I hope you didnt take money to put this up.

9 Sandy X

What about emergencies? How about an “emergency fund”….money saved for “when life happens”. There are a variety of financial products available and, ultimately, it’s up to the customer to decide what best fits his/her needs. In the case of payday loans, however, the criticisms you list are more common than not. 75% of payday loan customers renew/rollover their loans, thereby incurring additional fees beyond the original term of the loan, often 14 days. The ramifications of a neglected payday loan are far more crippling than an unpaid credit card; these include insufficient fees (aka ‘NSF’ fees, approx. $35 each) and possibly the closure of one’s checking account. With a credit card, the consequences of an unpaid bill means negative marks on your credit report. When your checking account is closed (something required for a payday loan), your options for common expenses become much more expensive: you’ve got to pay a 2%-4% fee for cashing your check, purchase money orders, and pay for wire transfers. Additionally, you no longer have the safety and convenience of a deposit account (unless, of course, you elect to use a pre-paid debit card…another costly alternative to well managed checking accounts…otherwise, you’ll have to keep an eye on your cash). I didn’t make up these numbers, I’ve included one of my sources here so you can see for yourself: Elliehausen and Lawrence authored “Payday Advance Credit in America” (as part of the Credit Research Center, Georgetown University) http://tinyurl.com/paydayloanssuck

10 Ninja

Wow good stuff in their Sandy. Were you in the business or know someone. You know a ton!!!

11 psycharah

The issue I’ve noticed with payday loans is that they give an immediate sense of relief, but then the dread returns when you’re short next time with your reduced cheque. If you couldn’t handle the emergency two weeks ago, what has changed now? It’s a vicious cycle, and if you include the fees, the rates are much higher than they first appear.

If you put something on a card, you’ve got a little more time to figure out how to pay it off (i.e., do you sell something, pick up extra work somehow, eat beans and rice for two weeks etc.) We use our credit card for convenience and pay it off each month. I could live without it certainly, it would just take a little more planning, but I would not choose to live without them if it meant payday loans were the only alternative.

12 David

Shame on you, Ninja!

I understand you have to pay the bills, but running a sponsored post for payday loans is really low.

“But what about the emergencies? … Try this other novel concept: Look into paycheck loans .” How can you advocate this over that old PF standby, the emergency fund? Paying an interest rate in the hundreds (or thousands) is now something you’d promote over an emergency fund?

“You can get into trouble with these loans: Really? You can’t borrow more than an amount that is less than one pay period.” Ninja, do you not feel any remorse at telling this lie, that paycheck loans are not dangerous? Are you truly unaware of the masses of people that are trapped in payday lending, paying off last paycheck’s loan with your latest paycheck, then taking out another loan and getting stuck in an endless cycle of borrowing?

“You could do a lot worse than paycheck loans.” What?! How would you do that, by going to your neighborhood loan shark? Alternatives listed by Wikipedia: “Other options are available to most payday loan customers. These include pawnbrokers, credit union loans with lower interest and more stringent terms, credit payment plans, paycheck cash advances from employers, bank overdraft protection, cash advances from credit cards, emergency community assistance plans, small consumer loans and direct loans from family or friends.”

Ninja, you’re advocating for a loan product that is effectively banned in 11 states. See this article, from which I’ll pilfer some quotes: http://www.getrichslowly.org/blog/2006/12/28/the-dangers-of-the-payday-loan-trap/

“”Payday lending just keeps growing, and it just keeps sucking our community dry,” said Ralph Richards, a co-owner of Earl’s, Gallup’s largest and busiest restaurant.

Mr. Richards sees the impact among his 120 employees, mainly Navajo, some of whom become trapped by payday loans they cannot repay and, he said, “develop a sense of hopelessness.””

“If you see a payday loan store moving into your community, my advice is to fight it. I see these businesses as predatory, and nothing more than a fancy neon sign on top of old-fashioned schemes for usury. But don’t just stop at worrying about payday loan storefronts — they’re the worst, but the credit industry offers these “products” in many forms, and you can easily get caught in renewing a short-term loan at great expense.”

13 Brent

I agree David. i am VERY disappointed that this article was published on this site just so ninja could make some money. This isnt what this blog began about. I hope to not see something like this again.

14 Ninja

You guys sound like my parents :)

15 MW

Considering payday loans are a huge contributor to the staggering debt-loads filed and bankruptcies claimed in your country, I have to agree that it was really irresponsible of you to post this. Suggested topic for Monday: Why sub-prime mortgages are totally awesome.

16 Robert Muir

I would NEVER advocate a payday loan if there was ANY alternative. However, for some people who have strained circumstances, the choice is a payday loan, get the car fixed and make it to work on time or miss work and get fired. Hopefully after something like that happens, the person smartens up and starts saving an emergency fund. But I do not think payday loan places should be illegal. At least they can’t break your legs if you can’t pay back the loan.

17 Lysander

I would rather have seen nothing (or a simple message, such as: GN is in town, so no new post for you!) than garbage like this.

As dismayed I am by the content of this post in general, I’m even more disappointed in Ninja for making the poor choice of sacrificing his reputation for a small financial gain.

18 slug | sunkcostsareirrelevant.com

Your Tweet: “@MJTM That’s why I ran it man. It was too darn good to pass up. Even if it means I lose a few readers #worthit” This statement really devalues your readership and makes you look like a total sell-out. Did you do this just so you can have content for an apology post tomorrow?

19 Ninja

What would I apologize for? Running content of MY choosing on MY blog? If people are going to stop reading me because of ONE sponsored post that they may not agree with, then yes, I am fine losing those few readers. If I was running sponsored posts every day, then I’d understand, but one every 500 posts hardly makes me a sell-out. This site is both a blog and a business. Today, I ran it like a business. I imagine the next 300 or so posts will be blogs.

20 FinanceMami

Yes indeed. It IS your website, and you can do with it whatever the heck you see fit. But call a spade a spade. This is DEFINITELY selling out, dude. You know good and well that you’d NEVER EVER EVER suggest this advice for one of your friends or family members… I’m all about getting paid too, but not at the cost of going against a core belief. Totally disappointed in ya for this one. Do better, my friend.

21 David

If this was a health blog, would you have no qualms running a sponsored post about how McDonalds really isn’t unhealthy? There’s a difference between posting paid content and posting paid content that is untruthful and totally contrary to the ideas the blog promotes.

22 Melissa Z

I’m sad to see both this post & your response to it. It is your blog & you have every right to do whatever you want on it. This post was clearly labeled as a sponsored post with a disclaimer at the end that you don’t agree with what is being said. Your blog, your choice.

My opinion: There is nothing to inhibit you from including topics/subjects/viewpoints in future posts that someone else is paying you to include- without crediting a sponsor. So now what is posted is open to suspicion: is that what ninja thinks or is someone paying him to include their propoganda. Having to wonder that completely defeates the purpose of me reading an independent personal finance blog. I read independent personal finance blogs because I want a different opionion than the commercial crap sponsored by whichever big company wants to make money.

23 Ninja

All bloggers are required by law to indicate when a post was sponsored. You don’t have to worry about subliminal advertising here.

24 Brent

it is selling out. I suggest finding sponsors you actually believe in…they are out there. Then they can pay you to run posts that you believe in cuz I know debt ninja would never take a payday loan himself, so why would he run an article encouraging others to take out those kinds of loans?

25 Pam

Yikes. I knew you were posting something sponsored, but I didn’t expect this. I have to say I’m disappointed.

Especially after showing how you’re at $100,000 net worth, you sacrifice your (totally awesome) reputation for $500. Big sad face. I agree that it would be more helpful for everyone involved if you had sponsored posts for products you actually believe in.

26 Eboo

Still looking for the “few compelling arguments for why a payday loan isn’t necessarily as evil as we all think they are”. Which ones are those?

Bitterly disappointed in today’s sponsored post on a PF blog, from someone who a lot of people admire for their financial savvy. I should have stopped reading today’s post after the first paragraph. It is my sincere hope that most folks don’t just glance over the beginning and end notes from Ninja and think that he actually recommends the use of such products.

27 Lea

Like others, I’m very disappointed in this post and your responses to people’s issues with it. I’m all for doing what you can to make some extra cash, but you have to have ethics along with your business sense. As a writer, I’m often called upon to write articles that appear as legit magazine articles, but are paid for by the company being highlighted (including restaurants, construction businesses and government departments). But I would NEVER even think about writing an article paid for by a company that I don’t agree with. The one that really comes to mind is a cigarette company. Payday loans are another one. I used to work for a law firm that took on legal aid cases and I’ve seen what payday loans can do to some people’s lives.

It’s shameful that you would sell yourself out. And yes, you have done that by compromising your ethics – if you don’t feel you’ve compromised your ethics by publishing this, then you might want to re-think your stance as a personal finance blogger. You have a responsibility to your readers whether you like it or not. And that responsibility means you sometimes have to turn away sponsors. Would the Heart and Stroke Foundation or a cancer foundation run a commercial sponsored by cigarettes. Hell no. And what you did is exactly the same thing.

28 Eric

Sponsored posts are fine. You might as well get some $$ where you can. However, sponsored posts even implying that payday lending is remotely related to sound personal finance is bordering unethical.

29 Louise

wow ninja, I’m really stunned to see this on your blog, it’s so irresponsible, payday lenders are SCUM.
I’ve enjoyed your blog but won’t be reading after this

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