DebtHammer Newsletter #10: The Tools You Need to Become Debt-Free

Cash Advance Apps 101

A cash advance app is an app you can download onto your phone and use to borrow ahead of your next paycheck. They’re usually free to use, though some apps (like Brigit) come with a small monthly subscription fee or have a tipping option (like Earnin or Dave).

Unlike other short-term cash advances, cash advance apps don’t require a credit check, meaning nearly any adult is eligible to use them. They also don’t typically come with interest or other fees. This makes them a more affordable alternative to high-interest credit cards or short-term payday loans, which have an average APR of about 400%.

The amount you can borrow from a cash advance app is usually limited to somewhere between $50 and $300, but some apps will automatically raise this limit once you display good money habits. You can also typically receive funds quickly — often on the same day that you request them.

Although cash advance apps have their advantages, they can still be risky. The convenience of these apps makes them easy to use but if you’re going to use one, do so with caution. After all, the amount you borrow comes from your next paycheck. If you take out more than you can repay, or if you frequently have budgeting problems, you could end up in more financial trouble than you started with.

How much should I tip?

The average cash advance app requests a default tip that averages $15. While tipping is fair, $15 for a two-week loan can mean an APR in excess of 100%. For perspective, credit card APRs usually max out at an APR of 30%. This means that depending on how much you borrow, a tip ranging from $1 to $5 would be fair. But tipping is optional, which means you can skip tipping altogether. Don’t feel pressured.

Who should use a cash advance app?

Cash advance apps are mainly meant for small things like utility bills, car payments, gas, or groceries — that is, things that can’t wait until you get paid, or that will be considered late or rack up a significant fee. They’re especially useful for people who often face overdraft charges or frequent late fees on bills.

Plus, the requirements for using a cash advance app are generally low. Most don’t require a credit check, meaning you don’t need to worry about credit score, debt-to-income ratio, or other factors. As long as you can provide proof of income and have a checking account with direct deposit set up, chances are you’ll be eligible.

Rewards for using an app

Recently, some cash advance apps have started offering incentives to get people to use them. This includes cashback rewards for using them and free insights into your finances. These perks are usually part of a bundle deal. For example, MoneyLion lets you earn cash rewards for using the app and having Credit Build Plus. And Albert is offering a $150 sign-up bonus.

Regardless of the incentives, only take out a cash advance when you truly need it. Otherwise, you could end up going into debt or having other financial issues later on.

Survey says… 33% of people are now using cash advance apps

According to our recent Debthammer survey, around 33% of people have used a cash advance app at least once. About 77% of these users have also taken out one or more payday loans. Those who have used payday loans have also borrowed money from cash advance apps an average of 4.2 times each, indicating that these short-term solutions are a sign of a bigger financial or budgeting problem.

Around 18% of people who use an app with a tipping option end up paying the suggested amount – around $15 per cash advance. Even though these apps don’t charge interest, tipping and membership fees can really add up. For some people, they could end up costing nearly the same amount as a payday loan due to their short repayment term.

Cash advance app alternatives

These apps are not a long-term solution to financial struggles. If you find yourself regularly using one, it might be a good idea to consider other options.

  • Take out an unsecured loan. If you have great credit and solid income, you may be eligible for a low-interest personal loan. Wells Fargo, for example, offers personal loans starting at $3,000. These loans have a fixed interest rate of 5.99% to 20.99% (depending on credit). If you don’t want to go the traditional bank route, consider a credit union or private online lender instead.
  • Get a side gig or side hustle. There are a lot of options here, ranging from graphic design to pet sitting. Taking on the occasional side gig could mean earning a few extra hundred dollars a month. You can use this money to help offset regular expenses, or start paying off debt.
  • Ask for extra hours at work. If you’re currently employed and are struggling with bills, ask for an extra shift every now and again. Or, if your company offers overtime pay, take advantage of that.
  • Get support from friends or family. It’s not always easy to admit when you need help, but that doesn’t mean you should avoid it. Sometimes government resources are available if you need immediate help. Andif you need a small, one-time cash advance, consider asking someone close to you. Make sure you’re both aware of the terms so everyone’s on the same page.

Applying for student loan forgiveness

The average American undergraduate student owes around $44,150 in student loans. For many borrowers, this amount is a major burden — one that can take decades to repay. Some student loan borrowers even consider them a scam — albeit a somewhat useful one — because of the loans’ high interest rates.

Fortunately, after years of trying to get student loan debt forgiven, there’s finally a light at the end of the tunnel. As of this month, Biden-Harris Administration’s student debt relief plan is a go and the application for debt relief is now open.

If you’re ready to reduce your student debt, head on over to the website, create an account (or log in), and fill out an application. Depending on your circumstances, you could get up to $20,000 wiped clean.

Although not comprehensive, here are a few things you need to know about eligibility:

  • You need to make $125,000 or less annually as an individual ($250,000 for married couples) to receive debt relief.
  • If you received a Pell Grant, you could get up to $20,000 in student loan forgiveness. For everyone else, the maximum amount is $10,000.
  • Subsidized and unsubsidized loans, as well as graduate PLUS and parent PLUS loans, are eligible for forgiveness. Certain consolidation loans may also be eligible. However, loans not held by the Department of Education, such as private student loans, may not be forgiven.

Almost 8 million student loan borrowers may be automatically eligible for relief. However, it’s still a good idea to check your eligibility and apply.

You can apply anytime, but the final pause for student loan repayment ends December 31, 2022, so don’t wait. Keep in mind that it typically takes about 6 weeks to receive relief.

For more information on eligibility, check out One-Time Student Loan relief. Or get the application process started here. Make sure your contact information is updated – both on the site and with your loan provider – before continuing with the application.

The bottom line

Millions of people struggle with finances in America. If you find yourself turning to high-interest payday loans, credit cards, or installment loans, you may want to consider using a cash advance app instead. These apps can help get you by until your next payday, but you should only use them when needed.

And if you have student loans, Biden’s forgiveness program may be able to help ease your debt burden by up to $20,000. Erasing that much debt could pave the way for borrowers to truly start focusing on their financial health and begin using more of their income to build a financially secure future.

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