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University of Minnesota Extension

Alternative financial services and avoiding the debt trap

Payday loans and other alternative financial services offer a financial lifeline to individuals and families. The ultimate goal is to pay off loans to these “fringe” banking services, stop using them and start building wealth.

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What do payday lending, check cashing, auto-title lending, and pawnbrokering have in common? They are alternative financial services, sometimes called "fringe" banking services.

Entities other than federally insured banks and credit unions provide alternative financial services. These services fill a gap in the mainstream financial system. They do so by providing small-dollar consumer loans with short, or no, waiting periods.

Payday loans and similar services offer a lifeline to individuals and families who need these services to make ends meet. But the cost of payday loans and other alternative financial services is high. This can lead individuals and families into an endless cycle of debt.

Experts say the best course is to avoid using alternative financial services altogether. But if that’s not possible, strive to manage them to your advantage. Once you gain control over your “fringe” creditors, you can start saving money and creating wealth for your family’s future.


Sharon Powell, Extension educator in family resiliency

Reviewed in 2023

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