Why Payday Loans Don’t Get You Out Of Debt
You have a job, a spouse and kids, yet you can’t seem to get ahead of the mountain of bills coming your way each month. You’ve been robbing Peter to pay Paul — and it’s caught up with you.
Now, you’re faced with some tough dilemmas. It might be the decision whether to buy groceries or pay the utility bills or purchase necessary medications versus paying the mortgage. Either way, you are stretched so thin that something will have to give. You’re looking desperately for a viable option and decide to take out a payday loan.
This is a really bad idea. Let’s examine the reasons why.
You enter a cycle of almost endless debt
Three-quarters of all payday loans go to consumers who take out nearly a dozen of these high-interest loans every year. When they cannot pay off a loan, they contract for another and the consolidated loans mire them even further into debt.
The fees are exorbitant
Much ado is made about credit card APRs that can be as high as 30%. However, that is but a drop in the bucket when compared to most payday loans with APRs of nearly 400%. If that loan winds up being extended a few times, you could owe $800 on a $400 loan.
Watch out for the rollovers
The loan is due, but you don’t have it. So the lender “helpfully” offers to rollover the loan if you just pay the initial fee once again. That means that if you borrow $300, and the fee is $15 for each hundred of the loan, the original fee will be $345. But with a rollover, it’s now $390. If you couldn’t pay the $345, how will you ever pay the rest?
What’s a poor (wo)man to do?
The obvious answer is not to get in this situation in the first place. But if you are already here, that is a less than helpful reply. You may want to take on a second or even a third job. In the gig economy we have now, many people moonlight as tutors, drive for rideshare companies, accept online jobs on sites like Fiverr or even hire themselves out as petsitters and dog walkers.
You also might approach a relative or friend for a personal loan, although many debtors hate to do this.
Bankruptcy — the nuclear option
The mere thought of filing for bankruptcy is anathema to many people, yet this useful tool is used by many successful business owners — including our current president. The stigma is far less onerous on debtors than it once was, yet some debtors continue to waffle over making the decision to file.
True, it is not a decision to be made lightly. You will definitely ding your credit with a bankruptcy filing, but let’s be honest. If you are even contemplating filing for bankruptcy relief, your credit is likely shot already. It’s often better to bottom out and begin the slow ascent up than to continue making poor financial decisions that only drive your debt load higher.