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Millennials use payday loans to make ends meet

Rianka Dorsainvil, President and Founder, your greatest contribution

A new investigation by Price Waterhouse Coopers and the Global Financial Literacy Excellence Center at George Washington University finds that 42% of 5,500 Millennials surveyed took out a payday loan or auto title loan, used a pawnshop, got an advance tax refund or have purchased a hire purchase product within the past 5 years.

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“Taking out payday loans or auto title loans is a very dangerous practice and can leave the lender in more financial harm than good”,? said Rianka Dorsainvil, CFP®, president and founder of Your Greatest Contribution.Dorsainvil is also elected president in 2015 of the NexGen community of the Financial Planning Association.

“If you read the very fine print, according to the Consumer Financial Protection Bureau (CFPB), the cost of the loan (finance charge) can range from $ 10 to $ 30 for every $ 100 borrowed. A typical two week payday loan with a fee of $ 15 per $ 100 equates to an annual percentage rate (APR) of almost 400%. In comparison, APRs on credit cards can range from around 12% to 30%. In the long run, if the lender is unable to repay the entire loan, they may end up paying more fees than they have borrowed, ”he added. She adds.

Yet experts point out that Millennials find it harder than most to make ends meet. “Millennials face greater challenges – including economic uncertainty and student debt – than those who came before them”? According to researchers at Price Waterhouse Coopers and George Washington University. “As a generation bearing a new personal responsibility, it is critically important that Millennials are on the path to financial security,” the researchers say.

One of the biggest financial difficulties for Millennials is student debt. Search by Global Center of Excellence for Financial LiteracyA finds that two-thirds of Millennials (those aged 23-35 in 2012) have at least one source of long-term debt outstanding – whether it’s student loans, mortgages or car payments – and 30% have more than one. Among college graduates, 81% have at least one source of long-term debt.

Recorded by Anna Wostenburg

As for the management of short-term expenses in the face of long-term debt, Dorsainvil recommends:

  • If access to cash still seems to be a problem, focus on your spending over the past 30 days and ask yourself if the items you are purchasing are “needs” or “wants”. If it falls into the “want” category, then start putting that money aside in a rainy day fund so you can start borrowing from yourself and stop borrowing from financial institutions and to repay them with very high interest. I always tell my clients: short term sacrifices for the overall financial goal. If you’re still having short-term cash flow issues, it’s definitely high time to create a budget / spending plan.
  • “Once Millennials have established an emergency fund / emergency fund, it’s time to start investing. If you have a little wiggle room in your budget then I would say focus on carrying a percentage of your salary up to the employer’s level in your retirement account. You don’t want to leave free money on the table.
  • When it comes to debt reduction, focus on intentionally paying one bill at a time, of course while staying up to date (paying the minimum) on all other bills. Once that particular bill is paid, take the monthly amount you are used to paying and add that amount to the next bill. It’s basically a snowball effect. â € ‹

Always remember that as difficult as the reduction may seem in the short term, the financial choices we make today affect our financial and personal well-being in the future.