Getting an advance on your pension today may sound like a good deal – but that quick cash can come at a high price!  The risks associated with these types of advances are proving greater than the rewards.

What pension advances are?

They are similar to a “pay day” loan – offers to get cash quickly in exchange for the money you will get in the future from your pension. Essentially, you can get a lump sum cash payment after you agree to sign over your monthly pension checks for a long period of time – typically it ranges from 5-10 years.

Who are pension advance businesses targeting?

Usually, anyone with a pension can qualify for one of these “advances”. But, these companies focus on people with low credit scores, retirees, teachers, police officers, firefighters, and members of the military. However, according to a recent report by the federal government, the “advances” are really not advances at all – they are loans that carry extremely high interest rates. In fact, after fees, the interest rate you could pay on a pension advance could be over 100% in certain cases.

In addition to sky-high interest rates, people’s pensions are often worth much more than the amount of the “advances” or loans. In one case, the study found that some retirees who took a pension advance only received around 50% (between 46%-55%) of what their pension was worth without taking the advance.

Are there are better ways to get money?

If you are strapped for cash and are offered one of these advances, resist the temptation. There are some other options you might want to consider:

Small loans: Some banks or credit unions may offer short-term loans and give you a better interest rate than a pension advance. It’s important to compare loan offers to make sure you’re getting the best rate you can.

Cash advances: Some credit cards will offer a cash advance, but make sure you read the fine print! A cash advance from your credit card company can cost you more in interest than you currently pay on your credit card and don’t forget to look at any fees applied for taking a cash advance – they can add up quickly.

Make contact: If you are looking for quick cash as a way to pay your bills, don’t wait! Get in contact with your creditors and see if you can get an extension. Many times, companies are willing to work with customers to reduce their payments and make a plan to get the balances paid off. But, remember to find out if there are any charges, like a late charge or an increase on your interest rate, for getting an extension.

Credit Counseling: Look for a credit counseling organization near you that will advise you on managing your money and paying down your debts by helping you develop a budget and stick to it. Many times, the agencies will work with your creditors to reduce your payments or your interest rates. But, make sure you find out what the fee for their services will be and do some homework into the agency to make sure they are a trustworthy agency.