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Financial Library

Understanding Money Traps

The facts about high-cost “Money Traps”

Storefront financial centers such as payday loan centers, check cashing centers, and stores selling money orders may seem useful in everyday situations. The fact is that they are expensive money traps.

Here are some tips to help you avoid getting “trapped”:

Avoid Payday Loans

Payday lenders are happy to make you a quick loan when you need it. What they are not telling you is how much that short-term loan will cost you. According to a study by the Consumer Federation of America, the Annual Percentage Rate on a $100 loan for 14 days ranged from 195% to 1092%. Many people end up trapped in an endless loan, rolling over the loan and fees every two weeks because they can’t pay the balance plus the high fees.

Options instead of Payday Loans:

  • Start Small- Save $5.00 a Week- This is the most obvious choice instead of a payday loan. By saving money on a regular basis (weekly, bi-weekly) you will have money for emergencies and won’t need to go to payday lenders for small sums of money. 1st Financial offers allotments, where the money can be deducted from one account and can be deposited into a savings account.
  • Apply for an 1st Financial Signature Loan- A signature loan may be the responsible choice vs. a payday loan. 1st Financial charges a competitive Annual Percentage Rate. You make a fixed payment for a specific number of months.
  • Apply for a low limit credit card from 1st Financial - You may be able to qualify for 1st Financial ’s Classic Visa with low limits of $500-$1000. Best of all, the Classic Visa carries a competitive Annual Percentage Rate. Credit cards are good for emergencies, and you can choose to pay the balance in full each month or pay 2% of the balance. They also help establish a good credit history when you make your payments on time every month.
Avoid Check Cashing Centers/Money Orders

Check cashing stores charge fees Ranging from 2.5%-8% for every $100 cashed. That means you could pay between $2.50-$8.00 to have a $100 check cashed.

Money orders can be costly. Money orders can cost between 30˘ and $1.00. This may seem like pocket change, but compared to writing a check, it can be costly. For example, if you were charged $1.00 per money order and you paid 7 bills a month, the fees would add up to $84 a year!

Options instead of check cashing centers & money orders:

  •  Open a savings and checking account with 1st Financial - 1st Financial only requires $1 share deposit to open a savings account. Once membership is established, you can apply for a free checking account. If you are a member, you can cash your payroll checks for free or deposit funds into your accounts.
  • Order checks if you have a checking account. For $14.00, you can get a box of 150 checks. That comes out to just 9˘ for each check written, which is cheaper than money orders, not to mention more convenient. Hint: Make sure you have funds in your checking account to cover checks written. Bounced checks can negatively affect your banking history.


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