To underscore the importance of understanding financing options and credit card debt in a paycheck-to-paycheck reality, Purchasing Power is sharing tips to educate consumers about their choices for meeting short-term purchasing needs without compromising their long-term finances.
“Paying cash or using a prime credit card is the best way to buy, but nearly 80% of American workers are living paycheck to paycheck and many of them don’t have those options,” says Richard Carrano, CEO of Purchasing Power, a voluntary benefit company that offers a leading employee purchase program through the convenience of payroll deductions. “When faced with replacing worn out household appliances or purchasing a computer that a child needs for school, high-interest credit cards, payday loans or rent-to-own contracts might look like lifelines. But they can quickly devolve into compounding interest rates and fees, or even loss of merchandise.”
“It’s often the hidden costs and fees associated with high-risk credit options that take a financially fragile situation and make it worse,” adds Carrano.
Those high-risk options include:
Credit cards: For those with good to excellent credit and the ability to pay off their balance in full each month, prime credit cards offering low interest rates and rewards are a great option. However, 20% of U.S. consumers have FICO Scores less than 600, which means they do not qualify for prime credit. The lines of credit they are presented with likely come with a steep annual percentage rate that accrues each month. Furthermore, when only making the monthly minimum payments, consumers end up carrying that debt for years before it’s fully paid down. Today’s average credit card debt per card-carrying adult is $5,839.
Rent to own: With rent-to-own products, there’s a monthly principal amount plus service fees and taxes for a period of time, up to completing the rental agreement and owning the item outright. While the monthly rate makes items like appliances and furniture immediately accessible, renters typically end up paying as much as three times the retail value of an item before satisfying the terms for ownership.
Payday/Title loans: According to Pew Charitable Trusts, about 12 million Americans turn to payday loans each year. They are easy to get, only requiring identification, a job and a checking account. However, they often come with high percentage rates and fees, as well as extremely short repayment schedules. Rely on these loans only if you are certain you can cover the entire loan and associated fees by the designated due date.
An employee purchase program offers a better way to buy when cash or prime credit are not an option. It’s also an example of why voluntary benefits are a continuing trend in workplaces – they allow employers to meet the unique needs of their employees at all ages and stages of life.
As a voluntary benefit offered through large companies, associations and government agencies, Purchasing Power provides an employee purchase program and financial wellness platform as a buying alternative to cash-strapped employees. Through the employee purchase program consumer products and services are available via automatic paycheck deductions over a 6- or 12-month period. There’s no credit check, zero interest and no hidden fees, and the automatic deduction ensures employees don’t face the consequences of missed payments.
“In today’s modern workplace with a diverse, multigenerational workforce, benefits that help employees gain control of their financial life are becoming a must-have,” says Carrano. “Breaking the paycheck-to-paycheck cycle is achievable when employees have the financial tools they need to successfully budget and plan ahead for success.”