How to Avoid Using a Payday Loans for Utility Bills

Inside Subprime: Feb 5, 2019

By Lindsay Frankel

On average, families spend $2,200 each year on utility bills, according to the U.S. Department of Energy. Low-income households can have difficulty keeping up with utility bills, especially when unexpected costs come into the picture. Expenses such as food and rent are typically deemed more important, but defaulting on utility bills can have financial consequences. Many companies charge a late fee when you miss your due date, and while missed payments aren’t typically reported to the major credit bureaus, an account in collections will negatively impact your credit score. And while you may be able to survive a few days with the lights off, going without heat in the dead of winter could be difficult for your family to endure.

If you can’t pay your utility bill, you might be tempted to take out a payday loan to cover the expense. These short-term, high-interest loans are fast and easy to obtain, and they don’t require a credit check. But while payday loans are intended to be repaid in two weeks, many borrowers end up in a cycle of debt that can be difficult to overcome. In fact, borrowers taking out more than five payday loans in a year account for 91 percent of payday loans. Each time a borrower rolls over a loan, new fees are added, and the average annual percentage rate on a payday loan is nearly 400 percent>. If you’re in a bind and struggling to cover your utility bills, there are less risky options available.

Contact your utility company.

Many utility companies offer programs to help low-income families, such as cost-averaging plans that keep your payment the same throughout the year. You may also be eligible for weatherization assistance. Even if you can’t pay your bill on time, you’ll typically be given a 60-day grace period to get caught up before services are shut off, so don’t rush to your nearest payday lending storefront.

Apply for assistance.

Depending on your location and income, you may be eligible for assistance through the Low Income Home Energy Assistance Program (LIHEAP), which provides help with energy bills, weatherization, and some home repairs related to energy costs. Qualifications vary by state. You can also apply for programs that may help defray other costs, such as your state’s Medicaid or Supplemental Nutrition Assistance Program (SNAP).

Research local charities.

There are a number of organizations in each state that help low-income families cover the cost of utility bills. Check out this helpful list of state-by-state resources.

Conserve energy.

Set your thermostat back when you’re asleep or not home, adjust the temperature on your fridge or freezer, take shorter showers, use warm or cold water for laundry, or follow these other energy-saving tips.

Seek alternative methods of borrowing.

If you’re strapped for cash and can’t get assistance, you may need to borrow money. Still, payday loans should always be considered a last resort. Try asking friends and family for help first, or talking to banks and credit unions about lower-cost personal loans. If you have bad credit and need cash quickly, consider applying for an installment loan. The combination of longer terms and lower interest rates makes these loans more affordable than payday loans. Plus, you’ll build credit when you make your payments on time. Once you’re back on your feet, find ways to trim your budget and set aside money for emergencies so you can avoid borrowing in the future.

For more information on payday loans, scams, and cash advances and check out our city and state financial guides including FloridaIndiana, Illinois, KansasKentucky, MissouriOhio, Texas and more.