I Heart Money

Why People End Up In Trouble With Payday Loans

Payday loans are a hotly debated topic both in the streets and in the government. Some states are making them illegal, while others are quietly encouraging them, but people simply don’t understand why they lead so many people into debt. In this post I hope to help you understand why this happens, and what can be done to prevent it.

According to the website Fast Cash Authority, the reason that people struggle with payday loans is twofold. First, they are very expensive. An average loan will cost around $20 for each $100 that is borrowed. Those that rally against payday loans like to say that this equals a “triple digit APR”, which is true but not a fair metric since these instant loans have such short terms.

The main problem however, is the second one, the timing of paying it back. Payday loans are generally repaid on the borrower’s next payday, which will leave them just as broke then as they are the day they apply for the loan! High interest rates doesn’t necessarily lead to problems, people still use their credit cards every day, but when they’re forced to repay this loan in less than two weeks, the debt and stress pile up quickly.

In most situations people will make the mistake of requesting an extension on their loan, which increases the interest payment even further. All this does is drag out inevitable debt!

So what can be done to prevent this from happening? The single most important thing that can be done is if someone uses payday loans, they have to do everything in their power to make more money from the day they accept it until the day it’s due. Increasing that pay period’s income even by a couple hundred bucks can take off a ton of the pressure that comes with paying a payday loan back. One obvious solution would be to work overtime at their job, but selling off some extra stuff laying around the house or doing some odd jobs for a family member can help out a lot as well. Anything that can be done to raise extra money should be done.

Saving money is also extra income. There might not be much to go around during this period, but anything that is available to spend should be budgeted down to as close to zero as possible.

Using guaranteed payday loans isn’t inherently bad, but using them without preparing first is. It doesn’t take much to add a little extra padding to a checking account on short notice, and doing this will go a long way towards preventing the borrower from ending up in trouble from payday loans.

Tags: Fast Cash Authority, loans, pay day loans, payday loans

No comments yet.

Leave a comment