Avoiding Financial Predators On A Low Income
How can you protect yourself from unscrupulous financial scams and predator loans that can put your lifestyle and economic safety at risk? As with most threats, you’ll find empowerment in knowledge. Knowing and understanding the potential risks in each situation can help you to get better prepared to face the worst case scenario.
Beware of predators
There’s no way around it. Families with low incomes find it hard to make ends meet. When an emergency expense appears on the horizon, they may not be in the best possible position to face it safely. Indeed, low income is synonymous with debts, especially as it means you’ll have to purchase most things via a loan, which can affect your credit score in the long term. The problem is that if you can’t increase your income, your credit score will constantly reflect on your financial situation – namely the amounts you owe and the open debts you have drive your credit score down. So what happens to personal loans for credit scores below 500? As lenders are reticent to accept low credit scores, you might find only a handful of lenders with high APRs. For an emergency bill, it might be easier to borrow from friends and relatives.
You can take precautions
The best approach to avoid a crisis is to plan for emergency funds before you’re hit by an unexpected invoice. Using £1,000 as a saving goal, you can set a saving account or an ISA with automatic payments. You don’t need to pay huge amounts into it. But over time, you’ll be able to achieve your goal. Similarly, you can also build up your funds, using a side hustle activity for instance. You’ll find plenty of websites looking for freelancing talents so that you could secure an additional source of income in a few hours in the evening. It might not replace your full-time job, but it’s a little extra on the side!
Related: 3 Ways to Create a Rainy Day Fund
Know what to avoid
Last, but not least, predators tend to look appealing at first. Payday loans such as Wonga (the British brand had to shut down in August 2018 following complaints) offer short-term small loans are attractive to low income households. However, they come at a high price. You will be payer several 100s% in APRs. Wonga, for instance, has driven several clients to a financial crisis, and sometimes even to more severe consequences. In short, stay away from those apparently easy solutions.
Avoid borrowing at all costs. Try looking for an opportunity to earn some extra money before taking out a loan. If you do have to borrow, look for the lowest interest rate. Some credit cards offer 0% interest for the first year or so, but make sure to pay this off as soon as you can!
Financial predators are not specifically out there to get you. But they are likely to abuse your weakness to tie you to impossible situations. A payday loan should never be a solution. Low income households have other alternatives to build stability (such as looking to earn more and reducing your weekly spend).