Financial CrisisA small nest egg of $250 can help guide you through a financial crisis and avoid taking out a payday loan. On the flip side of that, when you do not have as little as $250 to help pay for an unforeseen event, you will likely need to take out a payday loan as your last pecuniary option.

That’s according to a new report from the think-tank Urban Institute. The report takes a look at the financial health of both the cities and their citizens. The authors suggest that just a few hundred dollars can prevent you from entering “into a spiral of debt” when taking out an auto title loan or a payday loan.

Detroit citizens, for example, are prime examples of consumers suffering from financial destitute. Twenty percent of Detroit residents do not have a bank account, which makes it hard to save. When the light bill is due, consumers may then have to turn to a payday loan business.

On the other hand, the organization states that more saving doesn’t necessarily equate to lower hardship levels.

“That doesn’t mean that more savings isn’t better…because we are finding that higher savings are associated with even lower hardship levels,” said Signe-Mary McKernan, senior fellow at the Urban Institute, in a statement. “So having more than $750 is going to get you even further. But don’t let that wanting-to-get-further keep you from getting started.”

In addition to providing sage advice, the report takes a look at some very interesting statistics. For instance, nearly one-quarter (24 percent) of Americans have zero cash savings, while close to two-thirds (62 percent) of households have less than $5,000 in non-retirement savings account.

Ultimately, the researchers opine, there is a reason why one-in-four households suffer from income disruption – layoffs, health issues or a massive financial event. This is why as little as $250 can play a huge role for many Americans who miss their bills or have rent to pay.

The study noted that many municipalities are testing out some creative solutions to ensure its populace doesn’t fall for alternative financing gimmicks many payday loan facilities seem to offer. In New York, the government maintains a program that allocates a part of your tax refund and matches it by as much as 50 percent if you don’t use it for one year – this is eligible for certain households that meet certain income requirements.

Overall, according to the organization, the $250 cushion allows consumers to avoid relying on their govenments for aid, which results in local savings for tight public budgets. Moreover, cities do not have to shut down residents’ services when they can’t pay their bills. Financial security allows citizens to purchase property and contribute to the local economy.

It’s information like this that is fueling public officials’ appetites to rein in the payday loan industry. Critics usually say that payday loans charge customers high interest rates and fees, which leaves them in a tough predicament. Proponents say it gives poor consumers a financial option to cover their bills, especially when they don’t have access to credit.

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