Avoiding Payday Loans: How to Deal With a Bounced Paycheck
Can a paycheck bounce? Unfortunately, yep. It does happen.
If your paycheck bounces or your employer is late with a payment, it can mean financial disaster. Here are the steps you can take to fix the situation, as well as savings strategies to make sure you have the funds to make it through.
If you’re one of the millions living paycheck-to-paycheck, then what would you do if your next paycheck happened to, well, just not show up. Or worse, it does show up, but when you go to cash it, you get the four worst words in the English language: “Transaction Failed, Insufficient Funds.”
What are you going to do now? Do you have enough money in your savings account to deal with a delayed paycheck?
If you don’t know the answers to these questions, don’t worry. There’s no need for you to run over to your local payday lender and take out a short-term, high-interest loan that’ll put you in an even deeper financial hole.
Instead, just keep reading.
1. Talk to your employer
“It happens most often in small businesses, and many times, it’s not only unintentional, the employer is rightfully embarrassed as hell.”
Dvorkin says that your first step should be to “call your employer and politely inquire. You just might get a horrified apology because someone forgot to do something important.”
According to Roslyn Lash (@RozLash), an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services, you should want to “make sure that the money wasn’t incorrectly transferred or some type of computer glitch.”
“Therefore,” she says, “you need to call your employer and explain the situation and inquire about a reissue date.”
2. Start a Paper Trail
If your bounced paycheck does turn out to be a simple error, then you’ll probably be fine. But if it’s something else—if your employer is maybe up to something—then you’re going to need documentation. You’ll need to not only document your lack of a paycheck, but your efforts to resolve the issue.
“If you contact your employer and you get an attitude, start a paper trail,” says Dvorkin. “Get a copy of the returned check, and keep copies showing if you had to pay overdraft fees.”
According to Lash, when people with a bounced paycheck contact their employer, they should “be sure to document the name, location of the representative that they speak with. This will be the beginning of the paper trail,” she says. “From this point forward, every conversation and everything… and I mean everything should be documented.”
3. Call Your Bank
Most people plan their bill payments around their paycheck. But when a paycheck bounces, that plan has got to change.
“Contact your bank to have all drafted automatic payments from your account canceled.” says Lash. “Explain the situation to the bank representative and request proof that your paycheck was not deposited into your account.”
“Any documentation that they can provide proofing that the employer had insufficient funds or that the check bounced would be helpful,” she says.
Lash also recommends that “if you have an emergency savings, transfer some funds into this account to cover any outstanding bills.”
“Ask your lender if there are any provisions made for NSF fees that you may incur,” she says.
4. Contact your creditors
People tend to think that lenders are totally inflexible when it comes to your payments. And while it’s true that most lenders aren’t pushovers, and they don’t like it when people are constantly calling in about insufficient funds, they do understand that (and this a very technical banking term) “stuff happens.” The same goes for utility companies.
Lash says that you should call your lenders and “Advise them of the situation and request a payment date change.”
“Explain that you expect to be paid by date (whatever date that the employer advised you) but you will keep them abreast of any changes.”
If you have already incurred a delinquent fee, she adds, “request a courtesy removal.”
5. If you need to, then lawyer up
In cases where you aren’t able to get the situation resolved immediately, then you’re probably going to need an attorney. (Also: a new job.)
Lawyers can be expensive. For someone with a low-income, especially someone who’s now not even receiving that income, a traditional lawyer might be out of the price range.
This is is why both Lash and Dvorkin recommends contacting your local Legal Aid office. If you qualify for free legal aid, they should be able to set you up with a lawyer.
“Meanwhile, if you want to get your employer’s attention, report him to the Department of Labor in your state,” says Dvorkin. “There are laws about these things, and you can file a complaint.”
Try These Savings Strategies
Of course, if you aren’t able to get your paycheck issue resolved quickly, then you’re still going to need money. Even if you are able to find another job, it’ll probably be a few weeks before your paid. In the meantime, how are you gonna eat?
This is where a payday loan might start looking like a pretty good option. But stay away. The extremely high APRs and the short repayment terms can all too easily lead to you rolling the loan over instead of paying it off on time. That’s how the dangerous cycle of debt begins.
Instead, the best way to manage this situation is to have money in your savings. This way, you can bridge the gap without having to pay any additional fees or interest.
Saving money does take some extra work and discipline—especially if you’re someone with a low-income, but there are definitely ways you can make it work.
Hack your recurring expenses: “The most effective way to build your savings or emergency fund is to reduce your monthly payments and direct the difference to your savings accounts. It’s a good idea to regularly review these expenses anyway to ensure you’re not overpaying. Good candidates for review include cable TV and internet bills, mobile plans, auto insurance policies, and subscriptions. You can opt to swap your cable TV for a Netflix and/or Hulu subscription; decrease your data plan based on usage; increase the deductible on your auto insurance policies to drop your monthly premium, and review the subscriptions you pay for and start making cuts. You can also use a service called Trim to review and cancel unused subscriptions on your behalf.”
Limit your splurges: “If you’re prone to buying coffee or dining out for lunch each week, start cutting back on these treats and deposit what you save into your emergency fund. Cutting out these purchases entirely may lead to burnout, so select a day or two during the week or month to treat yourself. Limiting your splurges to Fridays and paydays only, for example, strikes a nice balance between enjoying your money now and saving for the future.”
Automate your savings: “Paying yourself first means placing a priority on your financial wellness and security. This can be accomplished by setting up an automatic transfer of funds between checking and savings every time you receive a paycheck, or at any increment you choose. You can also use a tool like Digit which reviews your daily spending and makes small, incremental transfers from your checking to an online, FDIC-insured account.”
Sell your stuff: “While reducing your spending and saving money is an important part of building an emergency fund, so too is adding to your income. ‘Tis the season to spring clean and declutter, so consider selling your stuff at a garage sale, or through Craigslist or Facebook community groups, and deposit your profits into savings.”
Attempt a no-spend challenge: “The more adventurous savers can try a no-spend challenge, whereby you try to purchase nothing for a certain period of time (one week, one month or even one year). The money you save by limiting your spending can go toward building your emergency fund.”
Hopefully, you will never have to deal with a bounced paycheck. But if you do, follow these steps and you’ll weather the storm just fine.
|Howard S. Dvorkin (@HowardDvorkin) is a two-time author, personal finance expert, community service champion and Chairman of Debt.com (@debtcom). As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.|
|Roslyn Lash (@RozLash) is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services. She specializes in youth financial education, adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair. Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.|
|Kendal Perez is the Savings Expert for CouponSherpa.com (@CouponSherpa), a popular source for online, in-store and grocery coupons. Her money-saving tips are often featured on Bankrate, GOBankingRates, US News & World Report, Wisebread and more. Kendal can be found on Twitter @HassleFreeSaver.|