The high price of a payday loan

After a difficult week, you may find yourself short of cash a day or two before payday. Maybe this has happened before, and you have solved the problem by driving to a nearby storefront for a payday loan. Only this time, you haven’t paid back the loan from the previous week, and now you have to roll it over.

Are you certain that your paycheck will cover it? What if it doesn’t? Although a payday loan may put cash in your pocket this week, is there a light at the end of the tunnel? Can you see yourself juggling payday loans for the rest of your life?

Penny wise and pound foolish

The lure of a payday loan is that it is just enough money for a short amount of time. Often, there is no credit check, so if you are delinquent on other bills, that will not prevent you from getting the money you need. You simply write a check for the amount you need including the service fee, and the lender cashes the check when the loan is due. However, there is a price to pay for such convenience, including:

• Payday loans carry extremely high annual percentage rates, some as much as 1000 percent.
• If you can’t pay on time and opt to roll the loan into the next week, the loan will accumulate even more fees.
• If you don’t have the money in your bank account on the day the loan is due, your check may bounce, resulting in overdraft charges and other financial trouble.

Consumer advocates recommend avoiding payday loans and seeking more conventional ways to manage money. For example,

• You may create an emergency fund for times when money is short.
• You may look for a part time job to bring in extra money.
• You may open an unsecured credit card to use only for emergencies.

Of course, if you had the resources to do these things, you may not be in a situation where you need a payday loan. If debt is weighing you down, you may need a more comprehensive way to resolve your money problems.

Finding lasting solutions

While a payday loan may provide a moment of relief, it doesn’t address the underlying issues of unmanageable debt. Rather than taking on more loans in an attempt to catch up, wouldn’t it be better to eliminate as much of the debt as possible?

Many types of debt may be dischargeable in a bankruptcy. For example, unsecured debts like credit cards and medical bills may qualify for bankruptcy discharge. To learn if your debt problems can be solved through bankruptcy, you may wish to consult with a lawyer who can evaluate your credit situation and advise you of the best course of action. Many find that having real relief from debts is better than the uncertainty of another payday loan.