How to Avoid Using a Payday Loan for Holiday Spending

Inside Subprime: Dec 14, 2018

By Lindsay Frankel 

Don’t let the pre-holiday sales fool you – shopping for Christmas gifts isn’t cheap. In fact, Americans expect to spend an average of $885 on presents this year, according to a Gallup poll. And while it can feel great to surprise friends or family members with items from their wish lists, it may not be financially responsible to do so, especially if you’ll need to borrow money to cover the expense.

Sometimes, lenders will advertise “Christmas loans,” which can just by payday loans dressed up for the holiday season. Payday loans carry triple digit annualized interest rates that trap borrowers in debt. Holiday shoppers with bad credit may find that there are few alternative options for borrowing, but a payday loan should always be a last resort. Follow these tips to avoid taking out a payday loan for holiday spending.

Find ways to cut Christmas costs

You may not be able to afford everything on your kids’ lists this year, but being selective about what you purchase will positively impact your kids’ future financial habits, according to a report from T. Rowe Price. Indulgent parents who try to buy everything their kids want tend to have more difficulty teaching their kids to save money, and kids who are spoiled around the holidays are more likely to spend their allowance right away instead of saving. What’s more, parents who splurge on presents are more likely to end up in debt, and 10 percent of these parents said they have an outstanding payday loan.

Discuss prioritizing Christmas wish lists with your kids. Once you know which gifts are most important, you can create a budget for holiday spending. Calculate your expected income for the month of December and subtract any recurring expenses, like rent, groceries, or utility bills. If you’ll have any additional income to put towards holiday spending, divide it into categories such as holiday food, decorations, and gifts. Only buy what you have room for in your budget.

If you have little to no money leftover for holiday spending, consider less-costly homemade gifts for your friends and family or offer them coupons for services such as house-cleaning and babysitting. A Secret Santa gift exchange will also save you money; this holiday tradition requires each member of your group to only buy one present.

Seek alternative forms of credit

The prospect of letting Christmas pass by without giving or receiving gifts may be too bleak for some people to stomach. But if you must borrow, do so responsibly. Make sure you have additional income on the way, and seek out loans with low interest rates that you can manage paying back on time. You might find that friends or family will be willing to lend you money in the spirit of the holidays. If you need to take out a loan, banks and credit unions have loan products that are less costly than payday loans, and it’s worth checking to see if you’re eligible. Credit cards also have significantly lower interest rates than payday loans, but these might not be an option for borrowers who lack established credit history.

Should these options fail, consider taking out a lower-cost installment loan, which you can pay back over a longer time period. If you make your payments on time, your credit score can also improve, which will provide you with greater access to less costly forms of borrowing in the future. Once the holiday season has passed, consider setting up a savings plan to avoid a similar predicament next year.

No matter your financial situation, you don’t have to spend a fortune to enjoy the holidays; take the time to enjoy the company of your loved ones, and save for your future rather than splurging on nonessential material goods.

For more information, see our report on how to spend money responsibly this holiday season.

For more information on payday loans, scams, cash advances, and title loans, check out our state and city financial guides.

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A Beginner’s Guide to Budgeting

Starting a budget is going to require some work, but that doesn’t mean it has to be scary! Here are some expert tips to help you break the seal.

If you’ve got a lousy credit score and find yourself relying on high-interest no credit check loans and predatory cash advances to cover emergency expenses, the odds are good that your relationship with money could use a hard reboot.

And what’s the best way to do that? By building your first budget! We know, that sounds like a somewhat daunting proposition. But don’t worry. That’s why we’re here. We reached out to a number of different financial experts to get their best budgeting tips for beginners. Here’s what they had to say!


You already have a budget.

“When it comes to budgeting I tell clients that they already have a budget whether they know it or not,” said Financial Life Coach AJ Borowsky (@AskWhatNext). “The key is discovering the budget and then correcting any problems with it. The way to discover the budget is to begin tracking their spending in detail.”

Building and maintaining a budget is nobody’s idea of a good time. But like so many other tedious tasks in life, it’s vitally important.

“Yes, this takes discipline but it is an eye-opening practice that shows the reality of their spending habits,” said Borowsky. “Once their budget is revealed they (or we if we’re working together) can set priorities and go from a hidden, non-working budget to a well-planned successful budget.”

Start by tracking your expenses.

Sure, you could sit down right now and just conjure a monthly budget out of thin air. But it probably won’t bear any relation to how you actually spend money. Before you can rein in your spending, you have to gain a clear idea of how you’re spending it in the first place.

“My #1 budgeting tip is to track your expenses for a month before creating a budget,” said personal finance blogger Marc Andre of VitalDollar.com (@vital_dollar). “Without knowing how much you’re actually spending right now in the different budget categories, your budget is really just a guess.

“If you track your expenses you can usually identify a few areas where you need to cut back, and your budget will be much more realistic,” he added. “And if your budget is realistic, you’ll be more likely to stick to it.”

For those who want to start tracking their expenses today, Andre suggested using an app like Mint or Dollarbird. (For even more budget tracking apps, you can also check out the OppLoans app directory.) And for people who want to look at their previous spending, he recommended going back through your checking account and credit card statements.

“Put each expense into a budget category,” he said, “and then make sure that your ideal budget is something you can realistically achieve.

Bit by bit, you’ll figure out your cost of living.

When you’re tracking your expenses, what you’re doing is figuring out your cost of living. According to Certified Financial Planner Michael Menninger, most people underestimate their cost of living by over 30 percent, and they do so because they forget to factor in “discretionary spending.”

Menninger has two methods to help one determine their cost of living. He dubs them the “easy way” and the “hard way.” (Don’t worry though, the hard way isn’t that bad.) Here’s how he describes the easy way:

“This may sound overly simplistic, and that’s because it is!  Look at your savings and checking account balances from one year ago, and look at what they are now.  If they went up, you know that you’ve spent less than you’ve made. If they went down … uh-oh.

“You must also look at your debt balances, too.  So if your credit card balances (or lines of credit) went up or down, then they need to be factored in. Don’t forget to identify other ancillary income, whether it be gifts or other income.  Once you do this basic math, you will find your actual cost of living, which serves as the baseline.”

As for the hard way, Menninger recounted how he would create an Excel spreadsheet listing out all his different expense categories, including mortgage, car payments and repairs, gas, food, clothing, insurance, utilities, etc. There was one last column, as well, marked “other.”

“Let me tell you,” he said, “the ‘other’ column was second only to the mortgage, and represented discretionary spending.” Using his receipts, checkbook, and credit card statements, Menninger regularly updated his spreadsheet. “This task may sound extremely tedious,” he said, “but if you understand the use of Excel, this took me about one hour per month.”

After keeping this spreadsheet for a couple months, Menninger said he was “was able to ascertain which categories I could trim, and those that I could not.  Hence, the start of budgeting.”

Be honest.

As a part of her Healthy Money Menu™ budgeting program, CPA Atiya Brown (@LiveFinSavvy) has some great advice that every budget would do well to follow:

“Be honest with your category creations (your Healthy Money Menu should be a helper not hinder). If you eat out you should have a category for that and know how much you are spending.

“Categories should be specific, so food should have groceries, lunch or restaurants depending on your habits. Be honest with what you are spending when you prepare your tracking exercise.”

Staying honest with your budget might be a little more difficult than you anticipate. Luckily, keeping a close watch on your expenses will also serve as a wake-up call: No matter how you think you’re spending money, your budget will let you know the truth of how you’re actually spending it.

Keep your receipts.

Author Sharon Marchisello (@SLMarchisello) recently published a book titled Live Well, Grow Wealth based on “[her] own experience of living frugally, saving and investing, and retiring early.” She had some tips about how best to go about tracking your expenses.

“Make note of anything that’s a one-time expenditure,” she said, adding that you should try to avoid making purchases with cash: “It’s easier to keep track of spending when you pay by credit or debit card and/or check. Cash tends to get frittered away.”

Marchisello recommended that you “hang onto all receipts at least until the expense can be tracked—and longer if it’s an item that might have to be returned.” She also said that you should keep your receipts from credit card transactions until they can be reconciled with your statement.

Start making some tweaks.

When it comes to creating more room in your budget, Marchisello observed that it’s “easier to reduce the ‘going out’ than to augment the ‘coming in’ but certainly look at both.” In other words: It’s easier to spend less money than it is to earn more.

Here was her recommended method for cutting back on expenses:

“Divide expenses into four categories: absolutely necessary, necessary but reducible, discretionary, and totally unnecessary (like late fees and excess interest). Cut the low-hanging fruit first. Then take a look at what you value most in your life, and focus your spending accordingly.”

You don’t have to do everything at once.

CPA Belinda Rosenblum (@OwnYourMoney), President of OwnYourMoney.com, has a great strategy for building a budget that you’ll actually stick to. “The typical ‘budget’ doesn’t work for most people,” she said. “They feel limited and scarce—all the time.” Instead, she recommends you do this:

  1. “Create a goal as an incentive for yourself. Why do you want a budget in the first place? This will be your “north star” and grounding force to keep coming back to.”
  2. “Once you track actuals for a month, go through each line item and reduce the expenses where you don’t feel you are getting an appropriate Return on Investment. Start with items like cable, phone, and insurance, as you can likely lower your bills with little change in your experience of the service.”
  3. “Then set a planned amount to spend for each item.”
  4. “During the month, you don’t have to focus on scrimping on every item. Keep the estimates as general guides. Choose only three to five items where you have the most variability, choice, and usually the least longer term return on your dollars. These are your money leaks. Just like the rule of 80/20, these are the 20 percent (or even 5-10 percent) of the items causing 80+ percent of the issues with your budget each month. Focus on reducing and keeping those items in check.”
  5. “Once you determine what is an actual amount you can save each month, put it into a separate account to support your goal and check it each week and each month. Celebrate the account increasing as you take steps towards your goal!”

Three tips to build your savings.

The point of a budget is to free up extra funds that you can use to build an emergency fund, save for retirement, and pay down debt. Brian Davis, co-founder of SparkRental.com, has two great tips for ways that you can make sure those extra financial gains don’t get spent away.

First, he had some advice for folks who get paid every two weeks. “In any given month, you can only count on receiving paychecks for four weeks’ work,” said Davis. “On months where you receive an extra paycheck, save it!”

Second, he recommended that you refrain relying on your own self-discipline by automating your savings. “Discipline will fail you sooner or later,” he said.

“There are many ways to automate your savings; you can have your direct deposits split between your checking account and your savings account, or set up automatic transfers to take place every payday, or use apps like Acorns or Chime Bank.”

Lastly, Davis had a slightly more advanced tip for those who want to increase their income: finding a renter or subletter to help cover your housing costs!

“It could be by renting out a room in your home to a housemate, bringing in a foreign exchange student, renting out storage space, occasionally renting rooms or your home on Airbnb,” he said.

Just make sure you read out our recent blog post on how to vet potential renters first!

Building a budget isn’t easy—and sticking to one is even harder. But if you want to secure your financial future, it’s something you’re going to need to do. If you want to read more about how you can improve your long-term financial outlook, check out these related posts and articles from OppLoans:

Do you have a specific question about budgets you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Contributors

Marc Andre is a personal finance blogger at VitalDollar.com (@vital_dollar), where he writes about saving money, managing money, and ways to make more money. His goal with Vital Dollar is to help individuals and families get the most out of the money they have and to reach their full financial potential. He lives in Pennsylvania with his wife and their two kids (a son and a daughter).
AJ Borowsky (@AskWhatNext) had a successful career in television news as an editor, producer, and technology trainer. Being an entrepreneurial person, AJ wrote What Next: A Proactive Approach to Success and lived the lessons in that book when he opened a business in 2012. Curiosity led him to study financial planning and pass the rigorous CFP™ exam. Now retired, AJ fills his time with lots of outdoor activities and a financial life coaching practice.
Atiya Brown (@LiveFinSavvy), also known as The Savvy Accountant™, is a CPA, CA and Certified Financial Educator Instructor (CFEI®). She has a passion for building generational wealth and wants to help others do the same. She created the Live Financially Savvy podcast to help others lower their debt and build their net worth using techniques from others doing amazing things to Live Financially Savvy!
G. Brian Davis is a landlord, personal finance writer, and co-founder of SparkRental.com, which provides free video courses and rental investing tools for landlords. He spends most of the year overseas, splitting his time between Abu Dhabi, Europe, and his hometown of Baltimore.
Sharon Marchisello (@SLMarchisello) author of Live Well, Grow Wealth, became interested in personal finance at an early age and was a long-time member and officer of the Marathon Investment Club. She earned a Masters in Professional Writing from the University of Southern California and has published travel articles, short stories, book reviews, and a murder mystery (Going Home, Sunbury Press 2014). She also writes a personal finance blog,  Countdown to Financial Fitness.
Michael Menninger, CFP is an affiliated representative with Voya Financial Advisors who provides his clients with financial products and services, always with his client’s individual needs foremost in his mind. He uses his experience and wide-ranging business and educational background as a basis for creating financial plans unique to each client’s goals and aspirations. Mike focuses in various areas of financial planning including, but certainly not limited to: investment planning, retirement planning, and estate planning strategies; all with an emphasis on providing tax-efficient strategies and solutions.
Belinda Rosenblum, CPA (@OwnYourMoney) is the President of OwnYourMoney.com, a financial coaching and education company. She hosts her own TV show, radio show, and is a member of the National Speakers Association. Belinda is often called on as the financial guru for Boston’s ABC, NBC, and FOX networks, Yahoo! Finance, WomenEntrepreneur.com, Inc.com, SmartMoney.com, Univision.com, Today’s Financial Woman, RI Monthly, the Boston Business Journal, and even the Encyclopedia Britannica.

What’s a Payday Alternative Loan (PAL), and How Can You Get One?

The only downside to Payday Alternative Loans (PALs) is that you have to join a credit union now in order to apply for one when you really need it.

Frequent readers of the OppLoans Financial Sense Blog (or “Sensies” as we insist on calling them despite the fact that everyone tells us this is a terrible name) know how we feel about payday loans. To put it succinctly, we’re not fans.

As such, we’ve spent a lot of time writing about ways that people can avoid payday loans and other types of high-cost, short-term no credit check loans, like title loans and cash advances. The best way to avoid them, for the record, is to start saving money and build up an emergency fund.

But that’s a long-term fix to what is often a very immediate problem. When you have a financial emergency, like a surprise medical expense or an unexpected car repair, you need a solution that’s going to help you right now.

This is where Payday Alternative Loans, or PALs, come in. They do require a little bit of foresight in order to access, but they are one of the best financial products out there for people who are looking to steer clear of predatory payday loans.


What is a Payday Alternative Loan (PAL)?

So, there’s a difference between any old alternative to a payday loan and a Payday Alternative Loan (PAL). Notice how the latter is capitalized and comes with its own acronym in a very fancy set of parentheses? That’s because PALs are a specific type of loan product.

PALs are loans offered by credit unions that belong to the National Credit Union Administration (NCUA). Credit unions, by the way, are non-profit alternatives to traditional for-profit banks. Generally, membership in a credit union is determined by factors like where you live, work, or worship.

Because credit unions are nonprofit institutions designed to serve the interests of their members, they are able to offer products at a lower rate than for-profit institutions that are concerned with maximizing profit.

As such, credit unions that belong to NCUA have the option of offering PALs that come with much, much lower interest rates than other bad credit loans. Like payday loans, they also come with shorter terms than a traditional personal loan.

What are the terms for a PAL?

Under the policies set by the NCUA, all PALs must meet the following criteria:

Loan amounts between $200 to $1,000.
The borrower must be a member of the federal credit union for at least 1 month.
The term of the loan must range from 1 to 6 months.
The federal credit union can charge an application fee only in the amount needed to recoup the actual costs associated with processing the borrowers application, up to $20.
The PAL cannot be rolled over.

The maximum interest rate for a PAL is 28 percent, which is almost one-fourteenth the cost of an average payday loan. Additionally, the NCUA has proposed some rule changes that would allow credit unions to, among other things, ditch the one-month membership requirement.

How are PALs better than payday loans?

PALs are better than payday loans in pretty much every way! As we mentioned in the paragraph above, the maximum interest rate for a PAL is 28 percent. Compare that to the average APR for a payday loan, which comes in at 391 percent!

Additionally, credit unions are barred from rolling over PALs, which means that borrowers are less likely to be caught in a predatory debt cycle. Rolling over and reborrowing short-term loans is why the average payday loan customer ends up spending almost 200 days a year in debt.

The current NCUA regulatory framework goes even further to protect borrowers from entering a debt cycle with PALs. Credit unions are not only forbidden from loaning more than one PAL at a time to any single borrower, but they are also barred from lending out more than three PALs to a single borrower within any six-month rolling period.

How can you get a PAL?

The biggest disadvantage to PALs is their accessibility. You have to be a member of a given credit union in order to apply for one. So if there isn’t a credit union that you can join that also offers PALs, you’re out of luck. Getting a payday loan, on the other hand, is easy. Much too easy!

The one-month membership requirement also means that you cannot, for instance, go out and join a credit union right now if you need a PAL to pay for a car repair. Instead, you should go out and join a credit union before you have an emergency expense. That way, you’ll be ready to borrow a PAL when you need it.

If you’re already a member of a credit union that offers PALs, just call or visit your local branch to apply. And while you’re at it, see if they offer any free financial counseling services to their members. Many do!

There’s another payday loan alternative out there.

If you need a bad credit loan and you can’t access a PAL, then you’re pretty much stuck with a payday or title loan, right? Nope! We hate to get all “Yoda’s Ghost” on you but … there is another.

Bad credit installment loans can make for a safer, more affordable alternative to payday loans. The right installment loan will come with a lower interest rate plus more affordable individual payments.

Some lenders, like OppLoans, even report your payment information to the credit bureaus, meaning that on-time payments could help improve your credit score, which can mean better options for emergency bridge financing in the future!

Still, the best way to steer clear of payday loans isn’t to take out a PAL or a bad credit installment loan. It’s to build up your savings so that you don’t need any loan in the first place! To learn more about how you can improve your long-term financial outlook, check out these related posts and articles from OppLoans:

Do you have a financial question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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So You’ve Been Double-Billed … Now What?

If you get double-billed, just remember that advice you received in couples counseling and communicate!

Paying your bills is such a pain, isn’t it? You know you have to do it, but you still don’t want to. Maybe you could try to live in the woods to avoid paying any bills, but that comes with some major downsides. You’ll need to either avoid the wolves or make an alliance with them. The trees only offer partial cover from the rain. And let’s not even get into the various natural toilet paper alternatives, each of which leave a lot to be desired.

So you’re probably going to want to pay at least some bills, even though it isn’t any fun. But paying the same bill twice? Not only is that twice as unfun, but you won’t even get any extra benefit from it. And yet it can happen! With all of the computers and automation and malfunctioning robot accountants these days, getting double-billed is a real risk. So what can you do if it happens to you, and how can you prevent it?


First, keep an eye out.

You can’t handle double-billing if you don’t know it’s happening. Many people are already checking their various financial accounts as much as possible, but if you’re one of those people who doesn’t, you might want to become one of the people who does.

You should be checking your checking and credit card accounts at least monthly, but weekly is even better. If you have auto-pay options set up, you can check your accounts after the payments to make sure they actually went through properly—and only once.

If your bills aren’t being paid like you had thought they were, you could rack up late fees and your credit score could take a hit. If your bills are being double paid, you’ll have less money than you’re supposed to, which is obviously not so good and can lead to overdraft fees. Even if you have the money to pay your bills, you may not have the money to pay twice your bills.

So what do you do if you’ve been double-billed?

Make some calls (or emails or whatever).

Once you’ve noticed that you’ve been double-billed, it’s time to spring into action!

“We recently had the issue of double-billing occur with one of our vendors,” recounted Nathaniel Barker, director of business development for Kolibri Games (@KolibriGames). “In this case, the vendor (and HR software company) billed us once via our credit card and once via a bank transfer (the latter of which we initiated). We were able to resolve the issue by contacting the company directly, and navigating to their head of finance via the company phone tree.”

In addition to talking to the company or individual that double-billed you, as Barker explained, you should also contact your bank or whatever financial institution handles the account that was double-billed. That way you can either try to get the additional charge canceled or refunded if necessary.

But that’s just for this time. Can you prevent it from happening in the future?

How to prevent being double-billed in the future.

You can’t always prevent getting double-billed. After all, it’s really a mistake on the part of the entity that’s billing you. But there are steps you can take to limit the chance that you’ll be double-billed.

“The solution, going forward,” explained Barker, “is to ensure that merchants are only given one method of payment to keep on file, and that if they ask for things such as pre-payments (as was the case here), they are directed to use the on-file payment method instead of an ad-hoc method (like a bank transfer initiated by us).”

While that advice is obviously about a business, the same can apply to an individual. For example, imagine you have auto-payments set up with a certain credit card or bank account and you want to switch to a new account. Many payment systems allow you to keep information for multiple accounts in their system and just select the one you want to use for payment.

Rather than leaving multiple accounts in there, however, you should delete any information that isn’t currently necessary for the payment option you want. That way you’ll lower the odds of mistakes on either your end or the other end.

Double-billing probably isn’t the biggest financial obstacle you’ll face. As long as you’re using legitimate financial institutions and vendors, you should be able to fix any mistakes that may happen as long as you’re staying vigilant. But it’s still a pain to have to deal with. No one likes spending time on hold, waiting to speak to a customer service representative, after all.

When it comes to getting your financial home in order, every little bit can make a difference. And the same sort of behaviors that will keep you from suffering the consequences of double-billing, like keeping an eye on your accounts, will help you prevent other drags on your finances as well.

Getting billed isn’t quite as bad as getting stuck with a short-term no credit check loan like a payday loan, cash advance or title loan, but it could still drag down your finances, especially if overdraft fees get involved. To learn more about how you can protect your financial future, check out these related posts and articles from OppLoans:

What other worst-case money scenarios do you want us to write about? Let us know! You can find us on Facebook and Twitter.

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Contributors

Nathaniel Barker is an unabashed mobile game enthusiast—from selling the first game-laden smartphones to developing games (both AAA and indie) to evangelizing mobile platforms. He is currently the director of business development for Kolibri Games (@KolibriGames).

Here’s Why Some Cash Advances Are Much Riskier Than Others

The name “cash advance” can be used to describe two very different kinds of financial products, one of which is way more expensive and should totally be avoided.

Life is expensive, especially if you don’t have a lot of money. Simply getting from one month to the next can require a financial balancing act that makes you feel like that French guy from Man on Wire. And for the six out of every 10 Americans who have less than $500 in savings, an unexpected expense could send their finances into freefall.

Folks who find themselves in this situation are usually left with only a few options, none of them great. This is doubly true for those who have lousy credit scores. They’ll usually be left choosing between any number of bad credit loans like payday loans, title loans, or cash advances. (They should be checking out bad credit installment loans, but that’s a topic for another day.)

We’ve written about the dangers of payday loans and title loans in the past, but for this post, we want to focus on cash advances. Why is that? Well, because the term cash advance is, frankly, a pretty vague one. It can apply to totally different products, some of which are far more financially treacherous than others. If you’re in a money bind, it will help to know which you should consider and which you should avoid.


Cash advance loans are basically just payday loans.

You’ve likely seen ads for cash advance loans outside your local check-cashing storefront or on any number of annoying banner ads on social media apps and other websites. But here’s the secret about cash advance loans: They’re really just payday loans.

Cash advance loans get their name from the fact they act as an advance on your next paycheck, just like how payday loans get their name from the fact that they get repaid on your next payday. It’s two names for the same extremely flawed product.

They work like this: You take out a small-dollar personal loan, usually a couple hundred dollars, for a short period of time, oftentimes two weeks or less, and you get charged a flat interest fee. When the loan is due, the lender will either cash a post-dated check or automatically debit your bank account for the amount owed.

While that might not seem so bad, there are a lot of problems hidden right beneath the surface. A typical cash advance loan might be $300 with a 15 percent interest charge to be repaid in two weeks. Do you know what the annual percentage rate (APR) for that loan is? It’s 391 percent!

Then again, who cares about the annual rate if you’re going to be paying back the loan within two weeks? It’s only that 15 percent rate that matters, right?! Wrong. According to the Consumer Financial Protection Bureau (CFPB), the average payday loan customer takes out 10 loans a year, adding up to 200 days spent in debt annually.

What’s more, those short terms often end up being more of a burden than a relief.  The Pew Charitable Trusts has found that 86 percent of payday loan borrowers don’t have the money to pay back their loans on time. This is how people end up stuck in a predatory cycle of debt.

So if you’re thinking of avoiding a predatory payday loan by taking out a cash advance, you’re in for a rude awakening. These two types of loans are one and the same. No matter which you end up choosing, you’re getting a raw deal.

Credit card cash advances are good for cash-only expenses.

If you’ve ever needed cash for a certain transaction, you might have had to take out a cash advance on your credit card. Hopefully, you did this over taking out a cash advance loan, as credit card cash advances—while far from perfect—are far preferable to high interest no credit check loans.

Whenever you make a purchase on your credit card, the amount that you pay is added to your revolving balance. You can then either pay off the entire balance—which we highly recommend—or you can pay only the minimum amount due. If you pay off a transaction within 30 days of making it, you’ll fall within the card’s grace period and escape interest charges entirely!

With credit card cash advances, things are a little different. The amount that you pay will still be added to your balance, but you’ll also (in most cases) have a cash advance fee added on top of it. Additionally, you won’t have any interest-free grace period on those advanced funds. Interest will start accruing immediately—and at a higher rate than a normal transaction.

Lastly, you’ll have to contend with limits. This will vary depending on your credit card company and/or product, but most cards come with limits to how much you can withdraw in a single transaction or even a single day.

While credit card cash advances come with much lower APRs than cash advance loans, the fact remains that their usefulness is pretty limited. Unless it’s a transaction where you absolutely need cash, you’d be much better off just putting the transaction on your credit card. Accruing credit card debt isn’t great, but it’s better than either of your cash advance alternatives.

Want to get a head start on handling surprise expenses like a medical bill or car repair? Check out these related posts and articles from OppLoans:

What else do you want to know about cash advances? We want to hear from you! You can find us on Facebook and Twitter.

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Is Rent-to-Own a Good Way to Purchase a Home?

While rent-to-own agreements can be more affordable than standard home purchases—all with the added benefit of letting you live in the home before you buy—they aren’t without their risks.

Even if you’ve never bought a home, the odds are good that you know someone who has, which means you’ve also had the pleasure of seeing them slowly but surely lose their minds all throughout the home-buying process. Going from renting to owning in one fell swoop is not for the faint of heart.

Couldn’t there be a better way? One wherein a person eased into home ownership? Maybe even a process where they got to actually live in the house before taking out hundreds of thousands of dollars in debt to purchase it?

As it turns out, there is such a way to buy a home. You can do a rent-to-own agreement! But it too comes with a lot of risks and potential downsides—especially for the person doing the renting-to-owning. It can be a great solution for certain folks, but whether or not rent-to-own is right for you will all come down to the specifics.

Here’s what you need to know…


What is a rent-to-own agreement? 

As you might have guessed, rent-to-own agreements are based on the principle of one person renting a property from another person or company with the option to buy the property at the end of their lease. A portion of the rent payments generally goes towards the cost of the home sale, which can make this a more affordable option than just buying a home outright.

Cornelius Charles is co-owner of Dream Home Property Solutions, LLC, a California-based residential real estate investment company. He said that, “Rent-to-own agreements can work in various ways, depending on the agreement between the seller and buyer. In general, the buyer agrees to lease the home from the seller for a certain amount of months or years, and then they have to option to buy the home at the end of that term.”

“The length of the term, monthly lease amount, selling price, and down payment (as applicable) should all be agreed upon up front and included in the paperwork,” he continued. “If the buyer chooses not to purchase the home at the end of the term, they normally lose out on all monthly payments as well as the down payment.”

“From a buyer’s perspective,” said Daniela Andreevska, Marketing Director at real estate data analytics company Mashvisor (@Mashvisor), “a rent-to-own offers the option to buy a specific home in the future at a price fixed in the present. Under a rent to own agreement, the renter/buyer pays an upfront purchase option fee, which goes towards the down payment, after which he/she moves into the property and starts paying a monthly rent, going towards the purchase price. A rent to own agreement usually lasts for two-five years.”

What are the pros of rent-to-own? 

Doing a rent-to-own agreement can be a great way to buy a home if you don’t have the credit score or the savings to buy a home in the short-term. Saving up for a proper-sized down payment is hard! And extra time to help build your credit score is never a bad thing either.

“An individual with a poor credit score can start buying a home right away,” said Andreevska. “With a rent to own agreement, even people who can’t qualify for a mortgage at the moment can become homeowners in a few years. This means you have time to work on your credit score to get it to a level where you can afford a mortgage.”

Additionally, doing a rent-to-own agreement lets you build equity in the home and possibly save money on the overall price tag all the while giving the home itself a test drive.

“You don’t have to waste money on rent as all the monthly rent you pay goes towards the purchase price,” said Andreevska, adding that, “You can buy a home in the future for a price fixed in the present. Of course, you have to make sure the seller has not inflated the price too much to cover for this time lap.”

Lastly, she pointed out that “You get to live in the property before buying it, so you can make absolutely sure that it’s the right home for you.”

“The main benefit to the buyer is that you get into a home of your choosing while you take the time to fix your credit/finances as needed to be able to qualify for a mortgage to pay off the seller at the end of the term,” said Charles.” Other benefits could include having a stable place to live and locking in a price at today’s prices if the housing market is rising.

What are the cons of rent-to-own? 

Before you get too starry-eyed, you should recall that these deals come with a lot of risks. One thing about rent-to-own agreements is that they can vary widely from deal to deal, which means that the most important thing for you as the renter is to make sure that your loan agreement doesn’t unfairly advantage the other party.

“It’s all in the details,” said Kyle Alfriend, managing partner of the Alfriend Real Estate Group, (@AlfriendGroup). “There is no limit to the variations in rent-to-own leases.  Typically there are four key factions: Initial down payment, rent, final purchase price, and timeframe to purchase the home. How these terms are structured will determine if it is the right lease for you.”

Alfriend listed out some key questions and potential negatives:

  • Initial Down Payment: Is this money applied to the purchase of the home?  What happens to this money if you are unable to purchase the home due to no fault of your own? How is this money held?  Is it held in an interest-bearing account?
  • Rent: What is the rent compared to traditional rents in the area?  How much of the rent is applied toward the purchase of the home?
  • Final Purchase Price: Is the price set in the initial lease? How does the price compare to current market values? Is the price adjusted if the home does not appraise for the agreed upon value, making it impossible for you to get a loan? How are discovered defects in the home handled?
  • Time Frame: Are there incentives, such as a price reduction, if you are able to purchase the home before the deadline?  Can the deadline be extended if you are unable to obtain financing?”

And even with a rent-to-own agreement, buying a home is still very expensive.

“If you decide not to go ahead with the purchase, you will lose the option fee. It is not refundable,” said Andreevska. “Usually the option fee is quite high, so you still have to have at your disposal a considerable amount of money.

A credit score that’s still pretty lousy come to the end of the lease could also spell trouble, as could an unfavorable change in the housing market.

“You might still not qualify for a mortgage loan after the end of the rent to own agreement. Interest rates on mortgages will have probably gone up meanwhile,” said Andreevska. “If you live in a market where real estate prices depreciate instead of appreciate, you will actually end up paying more for the property than what it is worth at the end of the agreement.

Lastly, she points out that you’ll still be a renter during the lease period:

“You are not the owner of the property until you pay in full, which means that the owner/seller makes all major decisions.”

It’s all in the details.

If you’re considering entering a rent-to-own agreement, you need to make sure that the terms are fair and affordable. Anything other than that and you should be prepared to walk away. Get ready to get down there in the weeds.

“Every rent-to-own option is different,” said Alfriend. Here is the standard format that he uses:

  • Initial Down Payment: 5 percent, applied toward the purchase, forfeited if not purchased the home on the agreed-upon terms, by the agreed upon timeframe.
  • Rent: Market rate. You also have the option to pay extra, which will be applied toward the purchase.  I will match any additional rent paid up to $ 300 per month. All these funds are applied to the purchase but forfeited if not purchased on the agreed upon terms, by the agreed upon timeframe.
  • Price: “10 percent above current market.  If the home does not appraise, at my option, I can either refund your down payment or reduce the price to the appraisal.
  • Time Frame: You have three years to purchase the home. If you purchase the home, all funds are applied to your down payment and all is good.  If you choose not to buy and move out, all funds are forfeited. If you are unable to purchase the home but wish to stay in the home and extend your option to buy, I will create a new lease-to-own agreement, and reserve the right to establish a new purchase price and rent amount. If you agree to the terms, all funds you paid on the prior lease will be rolled over and applied to the new rent-to-own agreement.”

It’s probably not a great idea to sign a rent-to-own agreement if your only financial hope for the future involves winning the lottery. But if you have a clear path forward money-wise, you might do well to bet on yourself.

“Rent-to-own agreements are usually most appropriate when the buyer has high confidence that they can qualify for a loan at the end of the term,” said Charles. “Usually, this is for the self-employed or those who do not report a consistent income. They are also appropriate for those with a lower credit score who have confidence that they can get it higher in a few years.”

“For those with lower incomes,” he offered, “this may be appropriate if you have confidence that your pay will increase enough to qualify for a loan high enough to purchase the home at the end of the term. Also, if the down payment is very low or refundable, this could be a low-risk way to potentially get in a home without losing out on much/any more money than you would by renting a home.”

Lastly, Alfriend offered some advice that takes into account both the seller’s perspective as well as your need to anticipate big changes:

“Rent-to-own can be a very good option for people in certain circumstances. However, you are tying up the hands of a seller over a home you may or may not ever buy.  To do this, you must compensate the seller for their risks. If you end up buying the home, on the agreed upon terms, all is good. But what about those unforeseeable situations, such as changes in jobs, marriage, children? You must protect yourself in the lease to cover these changes.”

Buying a home is complicated. And while buying a home through a rent-to-own agreement might be slightly less expensive—or at least slightly more affordable due to the costs being spread out—it’s still fairly complicated as well. (And it’s certainly more complicated than you’ll find with a typical bad credit loan.)

Look on the bright side: No matter what method you use to purchase a home, it’ll be good practice for the complicated demands of homeownership itself! To learn more about borrowing money when you have bad credit, check out these related posts and articles from OppLoans:

What else do you want to know about buying a home? Let us know! You can find us on Facebook and Twitter.

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Contributors

Kyle Alfriend is a licensed broker through Re/Max, and the managing partner of the Alfriend Real Estate Group, (@AlfriendGroup) located in central Ohio.  He has been actively investing in real estate for 30 years and has been involved in the purchase of over 1,800 properties. His primary focus is the acquisition and remodeling of distressed properties in quality neighborhoods.  He then places those homes for rent or lease-to-purchase.
Daniela Andreevska is the Marketing Director at Mashvisor (@Mashvisor), a real estate data analytics company which helps investors in the US housing market make better and faster investment decisions.
Cornelius Charles is co-owner of Dream Home Property Solutions, LLC—a residential real estate investment company located in Ventura County, California.

How Amortizing Interest Can Help You Avoid a Predatory Debt Cycle

When you’re taking out a loan with bad credit, you want to make sure that every payment you make brings you one step closer to getting out of debt.

Before we get this wild and crazy party started and wax rhapsodic about the benefits of amortizing interest, we need to answer a simple question: What is a predatory debt cycle, and why is it something you’ll want to avoid?

Luckily, we don’t need to worry about the second half of that question, as just describing a predatory debt cycle will do a good job conveying the threat it poses to a person’s long-term financial stability.

A debt cycle is what happens when a person owes so much money towards their debt that they end up having to take on new debt in order to make ends meet. And while debt cycles are sometimes the result of pure financial mismanagement, a predatory debt cycle is what happens when a lender’s financial products are basically designed to trap borrowers in such a pattern.

Clearly, any kind of debt cycle is one you’ll want to steer clear of, but for folks with low incomes and poor credit scores, it’s all too easy to become ensnared by products that offer short terms and seemingly low interest rates. And one thing those products don’t have is amortizing interest.


What is amortizing interest?

When you take out a loan or a credit card, you are going to be charged interest, which is money on top of the amount that you borrowed. It’s how lenders make a profit and also how they protect themselves against the risk of borrowers not repaying. The better your credit score, the less risk you pose to a lender and the less interest you’ll be charged.

Interest is charged as a percentage of the amount borrowed—either as a flat rate or as an amount that accrues over a specific period of time. The former is common with short-term bad credit loans like payday loans, while the latter applies to pretty much all long-term installment loans and credit cards.

Interest that accrues over time is also oftentimes a part of an amortizing repayment structure! So when we talk about amortizing interest, that’s what we mean. With an amortizing loan, every payment made goes towards both the principal loan amount and the interest owed. While the first payment is mostly interest, the ratio shifts a little bit with each subsequent payment, until the final payment is almost entirely principal.

Since amortizing interest accrues over time and is calculated as a percentage of the total amount owed, this means that the amount you regularly get charged in interest will grow smaller over time. As a result, you’ll end up paying less in interest then you would initially think given the loan’s stated annual percentage rate or APR.

Here’s an example: If you took out a $1,000 one-year personal loan with a 10 percent APR, you would expect to pay $100 in interest, right? But you don’t! You would only pay $87.92 in interest. It’s not a huge difference, but every little bit counts.

The problem with non-amortizing loans.

As we mentioned above, non-amortizing loans are generally short-term products (like payday and title loans or cash advances) with average repayment terms around two weeks to a month. With such a short time to pay back a given loan, charging interest as a flat fee kind of makes sense.

But here’s the issue with short-term, non-amortizing loans. While it might seem like they would be fairly easy to pay off on-time, many people find the opposite to be true. They actually find short-term loans harder to pay off than traditional installment loans.

A lot of this comes down to the size of the payments. Simply put, these loans are usually designed to be paid back all at once, and many folks don’t have the funds to cover that kind of large transaction.

A $300 two-week payday loan with a 15 percent interest charge means making a single payment of $345. For someone on a tight budget, that’s a lot—especially in such a short time! According to a study from The Pew Charitable Trusts, only 14 percent of payday loan borrowers have sufficient funds to make their payments.

Welcome to the payday debt cycle.

So what happens when a person can’t pay back their short-term no credit check loan? Oftentimes, it’s one of two things. Either they pay the loan back and then immediately borrow another in order to cover their living expenses or they roll the loan over, paying a fee (or paying off only the interest owed) to extend the due date … and receive a new interest charge.

If that sounds familiar, it’s because it’s basically the beginning of a debt cycle! Your typical payday loan might have an interest charge of only 15 percent for two weeks, but that adds up to an APR of almost 400 percent! When the loan is paid back in 14 days, that’s not so much of a problem, but every time the loan is rolled over or reborrowed, the costs of borrowing increase.

This is the reality for many payday loan borrowers. Two separate studies from the Consumer Financial Protection Bureau (CFPB) found that eight out of 10 payday loans are reborrowed or rolled over within 14 days, while the average payday loan borrower takes out an average of 10 payday loans annually, spending 200 days per year in debt.

Because the interest charges for these loans are not amortizing, it is all too easy for borrowers to continually throw money at their debts without getting any closer to paying them off. In some cases, payday lenders have been found guilty of only deducting interest on a customer’s loan so that the loan would automatically renew without their knowledge. If you can find a better description of predatory lending, we’d like to see it!

Find a loan with amortizing interest.

Shopping around for a loan when you have bad credit can be tough. The likelihood that you’ll run into a predatory lender is far greater than it would be for someone with a score in the 750s.

And while you should always be reading the terms of your loan agreement carefully—plus checking out the lenders’ customer reviews and BBB page—you would also do well to stick with lenders who offer amortizing repayment structures.

This generally means choosing long-term bad credit installments loans over short-term payday loans. They are loans that you’ll pay off in a series of regular payments, with each payment bringing you one step closer to being out of debt entirely.

Some lenders, like OppLoans, even report your payment information to the credit bureaus, meaning that on-time payments could help improve your score! Amortizing loans aren’t perfect—nor are the lenders who offer them—but if you’re looking to avoid a predatory debt cycle, you should definitely check one out.

One great way to avoid non-amortizing loans is to fix your credit score! To learn more about how you can improve your credit, check out these related posts from OppLoans:

What other questions do you have about borrowing money with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Here are 4 Very Bad Reasons to Get a Personal Loan

Avoiding high-cost predatory loans is great, but even the most affordable loans can pose a danger to your finances if they’re being taken out for the wrong reason.

Normally, this is a blog that focuses on the dangers of predatory no credit check loans like payday loans, cash advances, and title loans. But for this post, we’d like to talk about something a little different. Instead of talking, per usual, about how these short-term bad credit loans pose a danger to your finances, we’d like to talk about the instances where any loan would pose a risk.

You see, even the best loans with the most generous terms can be a bad idea if they’re misused. No matter how low your interest rates are or how reasonable your monthly payments, debt is still debt. Some things are worth getting into debt over, while some things … well, they just aren’t.

What that in mind, here are four situations where taking out a personal loan is most definitely the wrong choice.


1. To pay for a vacation.

Who doesn’t need to get away once in a while? But that doesn’t mean you should be taking out a personal loan to do so. And don’t think that putting this long overdue trip on a credit card is going to work either. Racking up debt to finance your vacation is a bad idea all around.

Taking a vacation can be a great way to reward yourself for all the hard work you’ve done throughout the year, so why would you dig yourself into a financial hole in order to do it? That’s just going to mean even more stress when you get back home and the bill for your trip quite literally becomes due.

Instead, you should plan your vacation far in advance and set a little money aside from every paycheck in order to pay for it. And while putting your vacation on a credit card is a financial no-no, responsibly maximizing your credit card miles in order to make your trip more affordable is a … is there such a thing as a financial yes-yes? Then this is one of them.

And if you need a vacation in the short-term, why not try a thrifty staycation? Find fun and low-cost things to do in your area—and then go enjoy them! You could also try unplugging from social media, clearing out your Netflix queue, or even going camping in your own backyard!

2. To get new furniture.

New furniture can feel like a “must purchase” when in reality it’s often just a “want to purchase.” The difference between those two kinds of transactions can be a pretty helpful line when determining whether or not you should take out a personal loan in any situation. A surprise car repair, after all, is a lot more pressing than a new La-Z-Boy.

It doesn’t help either that good quality furniture is expensive and it really starts to lose its value the second it gets sold. So taking out a personal installment loan to pay for a new couch or bed or dining room set will mean the double whammy of higher principals and depreciating assets. In general, “good” debt is debt that increases your total net worth, while “bad” debt decreases it. And buying furniture with a personal loan would count as “bad” debt.

Here’s the good news: When you’re in a bind, many furniture stores offer financing programs where you can pay the purchase off in monthly installments with a fairly reasonable interest rate. Here’s the less good news: Some of those rates are, um, not so reasonable, and many “0 percent APR” offers will go “poof!” after a single late payment. Before you agree to finance, make sure you read the agreement very carefully.

If you’re looking for other options—besides simply saving up for the purchase—you could consider visiting local consignment shops for cheaper, gently used items or scouring your local college curbs during end-of-year move out times? Even if it’s for a temporary replacement while you save up for your forever couch, the savings will be worth it!

3. To purchase electronics.

A lot of what we said about furniture in the above section applies to electronics. They’re far more likely to be a “want” than a “need,” there are usually financing options available when you purchase, and you should definitely not be taking out a personal loan to buy them.

Still, while you’d be surprised how many “essential” piece of electronic equipment are things you could definitely do without, there are always going to be exceptions. For many folks, being without a phone or even a laptop would dramatically impact their lives, both personally and professionally.

If you’re in a situation like this, don’t panic. You could consider renting a laptop or even doing a rent-to-own agreement. You should also scour the ‘net for the best deals you can and seriously explore getting a refurbished product. That could save you bundles in the long-run while still landing you a top-grade device.

4. To pay for your wedding.

We’ve had a lot of fun here, today, folks. But now here’s the part of the blog where we grab you (gently) by the lapels, (gently) pull you in close, and (not at all gently) yell very loudly in your face: do not under any circumstances take out a personal loan to pay for your wedding!!!

Ahem. Sorry about that. If we got any spittle on you, we sincerely apologize for that as well. It’s just that taking out thousands and thousands of dollars of debt to pay for a single event could very well be the worst possible financial decision possible.

Not only will you be left with an expensive pile of debt and interest, but you won’t have anything to show for it. When people borrow hundreds of thousands of dollars to buy a house … they still end up with a house. People who use a personal loan to pay for their wedding end up with nothing but the happy memories.

And, hey, we have nothing against happy memories! But we do tend to object when those memories come at the expense of future happiness. There might not be a worse way to begin a brand new marriage than by saddling it with thousands of dollars in consumer debt.

Everybody wants to have the best wedding ever. Just remember that “best” and “most expensive” are not the same thing. Find ways to save money on wedding costs, and be very honest with yourself, your fiance, and your respective families as to what you can afford.

Your special day might end up being a little less special than you had hoped for, but all those un-special days that come afterward will be much better for it. And if you want to learn about more ways that you can save money, check out these related posts from OppLoans:

What other questions do you have about personal lending? We want to hear from you! You can find us on Facebook and Twitter.

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Expert Advice: Crystal Rau

An OppLoans eBook


Expert Advice: Crystal Rau

Crystal Rau, CFP®, MBA, Beyond Balanced Financial Planning LLC

“If someone finds themselves in a desperate financial situation, avoid payday loans at all costs! To preface this, I would define desperate as needing to cover food, utilities, shelter, or medication. Things like dining out, entertainment, or transportation because you have more car than you can afford is not an emergency. In the case of an actual emergency, reach out to your family or friends. This option can get you out of a bind quickly, and ensure you don’t damage the relationship by being diligent about repaying the loan. You never know when you may need their help again.

Go back to the basics with a budget. If you find your expenses are consistently outpacing your income, you have two choices. Either increase your income or decrease your expenses. You are the most important person in your life. That may sound sort of selfish but without you, who will take care of your family and you certainly don’t want to have to depend on your kids to take care of you when you’re older. Don’t be afraid to ask for a raise! If a raise is just not in the stars, ask your employer if there is any available overtime.

Find a side hustle. Got a garage full of junk that you can sell? Are you the best baker on the block? Perhaps you have the gift of photography! Whatever it may be, it goes back to increasing your income. A side hustle may start small but it can grow into something big and increasingly grow your income.

And finally, don’t forget your local credit unions. Credit unions may offer personal loans at a much lower interest rate than a payday loan company ever would. The only problem is you must have some credit history to your name. If you’re in a position where you have no credit history or you have damaged your credit in the past, start building your credit up. You can do this by taking out a secured credit card from your local bank. You do this by depositing a certain amount in a holding account with the bank and they will issue you a credit card on the amount you deposited on hold with them. By using the secured credit card, it will begin to grow your credit score allowing you to borrow on more favorable terms in the future.”

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How Much Do Grandparents Spend on Holiday Gifts?

The researchers at OppLoans surveyed over 1,700 grandparents nationwide to find out!

Posted: November 26, 2018

One of the best things about being a parent is the hope that one day you’ll get to be a grandparent. That’s when the fun really begins. Instead of worrying about raising those grandkids, you get to swoop in with gifts and sweets and pay your kids back for all the times they ever annoyed you when they were children.

Then again, while it’s fairly commonplace for parents to spend a lot of money on holiday gifts for their kids—and sometimes racking up expensive consumer debt in order to do so—the holiday spending rules for grandparents aren’t so clear. This got us wondering: How much do grandparents actually spend on holiday gifts for their grandkids?

With the holiday season kicking off in earnest this week, our team at OppLoans decided to find the answer. We surveyed over 1,700 grandparents across all 50 states (plus the District of Columbia), asking them how much they spent on holiday gifts, whether they felt their gifts were appreciated, and whether they ever foresaw stopping the grandkid gravy train altogether.

Once we had our answers, we broke the results down by state, age, and gender. Here’s what we found!

Which state’s grandparents spend the most?

StateAmount
Oklahoma$339
Connecticut$336
District of Columbia$330
Louisiana$328
California$311
New York$297
Tennessee$285
Massachusetts$282
Maine$270
Colorado$268
New Jersey$261
Mississippi$259
Texas$258
Kentucky$245
Alaska$243
West Virginia$243
Delaware$237
Alabama$228
Idaho$227
Missouri$221
Arkansas$213
Florida$211
Indiana$207
Ohio$207
Rhode Island$207
South Dakota$207
Pennsylvania$201
Kansas$197
South Carolina$196
Virginia$195
North Carolina$194
Arizona$185
Michigan$185
Utah$175
Maryland$171
Georgia$169
Oregon$168
Iowa$160
Montana$160
Illinois$157
Vermont$150
New Hampshire$146
Wisconsin$145
New Mexico$140
Nevada$129
Hawaii$129
Minnesota$128
Washington$121
North Dakota$118
Wyoming$113
Nebraska$93

Oklahoma Grandparents are A-OK.

Congrats are in order for grandparents in the Sooner State, who reported spending $339 per grandkid on gifts, more than respondents from any other state in the whole country. But grandparents in Connecticut and Washington D.C. are hot on the heels, with a reported $336 and $300 spent per grandchild, respectively.

In last place were grandparents from Nebraska, who apparently take that Midwestern sense of frugality thing to a whole new level. They only spent $93 on holiday gifts per grandchild, a full $20 less than grandparents in Wyoming, who came in second to last. Rounding out the bottom five were North Dakota ($118), Washington ($121), and Minnesota ($128).

Of course, the more grandparents spend on holiday gifts for their grandkids, the more they run the risk of overspending and racking up debt. When we mentioned “Midwestern thriftiness” in the previous paragraph, we didn’t mean it as a slight. Quite the opposite.

“It is key to budget, track and prepare when shopping to avoid overspending,” said Ken Mahoney, CEO of Mahoney Asset Management (@mahoneygps). “We often add an extra item to the basket or must have the most recent toy or fashion item, however, these expenses soon pile up. Creating a Christmas list to stop impulse buying and additional unneeded purchases is necessary.”

Mahoney had some additional advice for grandparents to help them stay within their budget:

“Don’t hesitate to inquire with a sales associate to uncover ways to save. For example—unadvertised coupons, upcoming sales—inquire about senior citizen saving days or promotions, and layaway programs. Whether it be 10 percent or even 20 percent off, it could be the easiest $100 you save.”

Grandpas spend more than grandmas.

On average, our survey found that grandparents spend $218 on holiday gifts for their grandkids.  But we were a little bit surprised when we found that grandpas actually spent more on holiday gifts than grandmas: $244 to $202. We would have thought it was the other way around!

We also asked our survey respondents to place themselves within three age groups: 35-44, 45-54, and 55+. Our results showed that, as grandparents got older, they spent less and less on gifts. Grandparents aged 35-44 spent $312, grandparents aged 45-54 spent $248, and grandparents aged 55+ spent $179.

Honestly, it was good to see older grandparents (who are more likely to be living on a fixed income) spending their money responsibly.  And, heck, for grandparents who want to spend more, there are ways for them to earn extra income!

Here’s a great recommendation from a nationally-recognized consumer and money-saving expert Andrea Woroch (@AndreaWoroch):

“One way to get away from stressors and maintain some freedom is by spending quality time with fun-loving pets. Sites like Rover.com can connect you with good paying dog-sitting and dog-walking opportunities in your area.  And lots of people are in need of pet care around the holidays.

“Sitters are able to choose their own rates and have the flexibility of scheduling their work around their availability. Rover’s sitters/walkers can easily find a gig daily and earn well over $1,000 per month. That kind of cash influx goes a long way in budgeting for the holidays.”

Don’t let that holiday spirit lead to a high-interest hangover.

Although this wasn’t one of the questions we included in our survey, it’s a fair bet that many of the grandparents who responded are putting their holiday shopping purchases on a credit card. And while credit cards can be a great way to earn points, maintain your credit score, and avoid those “it’s two days till payday” blues, they can also be pretty dang risky.

As such, here are some helpful tips from Brittney Mayer, credit strategist at CardRates.com (@CardRates), to help grandparents shop smarter and avoid making “get out of all that holiday debt” their default New Year’s resolution:

Don’t max out your cards. Avoid carrying high balances. CardRates.com states that your utilization ratio (which is what you owe over your available credit) is a huge part of your credit score.

Don’t use more than one or two cards when possible. Spreading out all of your purchases can make juggling monthly payment harder to manage.

Don’t sign up for multiple retail credit cards. They may be enticing at checkout when the clerk offers a 10-20 percent discount off your entire purchase, but oftentimes these cards can come with high interest rates and your credit score can also be adversely affected by opening multiple accounts.

Use cards that offer rewards. You’ll get cash back, points, and miles depending on the type of card you use.  All of your holiday purchases can add up very quickly so you might as well maximize your rewards.  You’ll have to make sure you are paying off your balance each month, though.

Use your card’s activity alerts. You can set up notifications to alert you of purchases made with your account. This can help you stay on track and avoid any fraudulent activity during the busy shopping season and save you a lot of money recovering stolen information or, heaven forbid, personal funds.”

Most grandparents feel their gifts are appreciated.

One of the other questions we asked was whether or not grandparents felt their gifts were appreciated, and we were glad to find that the vast majority of them do!

A whopping 80 percent of grandparents feel their grandkids appreciate the gifts, with only 11 percent feeling their grandkids appreciate the gifts a little bit, and four percent responding that their grandkids don’t appreciate the gifts at all.

Maybe those latter grandparents are the ones who plan to stop giving when their grandchildren reach a certain age. Seventy-six percent of respondents said they never plan on stopping giving gifts to grandchildren, but the ones who did cite an average age of 20 as their planned stopping point.

Clothing, toys, and gift cards were the favorite gifts for grandparents to give, according to our survey. But grandparents who plan to keep giving gifts to older grandkids might want to consider giving them the gift of money instead of the gift of, well, gifts.

“For older grandkids—cash is king,” said Andrew Moore-Crispin, the Director of Content at Ting Mobile (@tingftw), citing data from the Ting Holiday Shopping Survey. “51 percent of younger people, aged 18-30, said they would rather receive cash or gift card to help them pay a monthly expense (i.e. student loan bill, mobile bill, etc.).”

Lastly, 15 percent of those surveyed said they had been given a spending limit by parents. But that’s the great thing about being a grandparent, right? Sure, they can give you a spending limit, but that doesn’t mean you have to abide by it …

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Contributors

Ken Mahoney is a licensed financial advisor with over 27 years’ experience and is the CEO of New York-based Mahoney Asset Management (@mahoneygps). He is the author of several books including A GPS for Your Retirement and is a regular guest contributor on CNBC and FOX Business. Ken is also a staple on morning drive-time radio providing financial advice and can be heard on 100.7 WHUD.
Brittney Mayer is a credit strategist for CardRates.com (@CardRates), where she uses her extensive research background to write comprehensive consumer guides and in-depth company profiles. Leveraging her vast knowledge of the financial industry, Brittney’s work can be found on the National Foundation for Credit Counseling, US News & World Report, CreditRepair.com, Lexington Law, and BadCredit.org. Brittney specializes in translating complex financial jargon and ideas into readable, actionable advice on lending best practices.
Andrew Moore-Crispin is Ting Mobile’s (@tingftw) Director of Content and Brand. He leads the team that looks after anything that can be considered content (the blog, social media, video, commercials, ad copy, and other fun stuff).  Andrew started out with a degree in print journalism and an internship at a computer magazine. He progressed to become a technology magazine journalist and editor. You can imagine how the rest of that story goes. Except, perhaps, for the part where he ended up in front of the camera as the resident tech expert guest on a national news program in Canada for several months running. Or the part where he went to Malaysia to be the editor of a city lifestyle magazine for a year.  While he’s admittedly a bit of a geek, he’s built a career on talking about tech stuff in an understandable and approachable way.
Andrea Woroch is a nationally-recognized consumer-savings expert, writer, and TV personality who is dedicated to helping Americans find simple ways to spend less and save more without sacrificing their lifestyle. She is a regularly-featured contributor for popular shows like Today, Good Morning America, FOX & Friends, and KTLA Morning News. In print and online, her advice has appeared in popular media such as New York Times, USA Today, Money Magazine, Cosmopolitan, People, Consumer Reports, Reader’s Digest and many, many more. Read more about Andrea at AndreaWoroch.com or follow her on Twitter.