Should You Use a Cash Advance App for Holiday Shopping?
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Should You Use a Money Advance App for Holiday Shopping?
Cash advance apps offer an increase during the holiday season, but consumer advocates say they could lead to a cycle of credit.
Updated on October 19, 2022.
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Cash flow can be difficult during the holidays, when the cost of bills has to be weighed against things like gifts and travel to find a place in your budget.
Paycheck advance apps provide quick cash. You can borrow funds from your expected earnings for minimal or no cost, and take repayment from your next paycheck.
While the deal may be appealing for holiday shopping, consumer advocates and experts in finance warn that the apps can lead to the cycle of debt. This article will provide information on using loan apps during this time of year, as well as suggestions for making it through the holiday season without having to borrow.
Cash advance apps are a risk
They’re quick and simple. As long as you’re employed and receiving regular pay then you’re likely to be eligible to receive an increase.
The majority of apps limit advances to $200, and the amount you can get is determined by your income and expenses. The apps need access to your account at a bank to transfer funds to pay for the loan.
The withdrawal could result in an overdraft fee when you don’t have sufficient money in your account, states Lauren Saunders, associate director of the National Consumer Law Center. Some apps acknowledge the risk in their conditions of service, and state that they’ll try not to cause an overdraft, but they’re not able to guarantee this.
The advances come with the same risks, Saunders says. Some borrowers may not be able to afford the entire amount of repayment on top of their normal expenses, which could cause them to fall into the spiral of credit.
“People are often short with that hole in the paycheck or in their bank account and that makes them want to borrow again,” she says.
University of Northern Colorado graduate Michelle Adjei has occasionally used one of the most popular apps, Earnin , to pay for bills and Amazon purchases. Adjei says that her experiences with Earnin was good, but she would not recommend it if you’re struggling to cover necessities.
“If you’re using it to help you’re already behind, you’re only going to get worse and it will increase the burden for you, since you’re constantly looking to catch-up,” She says.
How do you use a cash advance app
Is buying a gift a good reason to get an advance? It’s entirely up to you, says Saundra Davis, founder of Sage Financial Solutions, a San Francisco Bay Area-based organization that focuses on financial coaching. Advances can be used to pay for bills or purchase gifts, and neither is necessarily wrong.
“No one can make who they are, and everyone is responsible for their own decisions,” she says. “But in order to make an informed choice, you have to understand the decision your making.”
That means figuring out the way a loan application can impact your financial position and how it is compared to the other alternatives, she says.
Noelle White says she keeps an eye on the cash flows in her account, which is why she says that using Earnin for a couple of emergency situations hasn’t led her to not pay any bills.
“When I make use of it, I generally make sure that I’m preparing the next one and ensure that the funds are available and I’m not likely into a negative manner,” she says.
Cash advance apps should only be a last resort, says the Atlanta-area Certified professional in financial planning Tania Brown. If you decide to use one she recommends limiting the amount of advance to what you’ll require and prior to that, deciding what you’ll do to manage your expenses on an upcoming paycheck.
“If this is your last option, think of an amount you can’t over, and then make a plan as to how you’re going to pay it off, and then create an action plan for the way you’ll save money,” she says.
Other ways to get through the holiday season
It’s not the best time to begin saving for the holidays that are right around the corner, but Brown insists that there’s plenty of time to .
She suggests cutting services or subscriptions that aren’t needed for a short period of time to free up space in your budget.
A , such as pet watching or hanging decorations for your neighbor, can also get you extra money, she adds.
“There are methods to do this, just think through a different lens” Brown says. “So instead of borrowing lens, consider an earning and saving lens.”
If you’re not able to make your budget more manageable enough, consider slimming down your Christmas plans. This could be the time to talk with family members about whether gifts can be something other than gifts that are physical, Davis says.
For example, the gifts she gives her grandkids don’t come with a bow. Instead she lets them take a look at Christmas lights or makes crafts with them.
“Understanding what’s really important to you about the gift-giving season is crucial,” she says. “Would the person you love want you to be in financial trouble to give them that gift? I’m guessing not.”
Find other options for borrowing during the holidays.
About the writer: Annie Millerbernd is an individual loans writer. Her writing has been featured in The Associated Press and USA Today.
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