Payday Loans
There has been a lot of attention focused on payday loans lately. These short-term, high interest loans can be quite costly, and some people find themselves falling into a cycle of using the loans over and over again just to stay financially afloat.
Here is how these loans work: You give a post-dated check to the lender, dated for the day that your paycheck is scheduled to be deposited into your checking account. The check you write is for the amount you want to borrow, plus the fees imposed by the lender. For example, if you want to borrow $50 before payday you might wind up writing the check for $80. You pay $30 in order to borrow $50 over a short period of time of a week or even a couple of days.
To most people this seems like an absurd arrangement, but if you have no money and you need to fill up your gas tank or buy groceries for your family then this may seem like a reasonable solution. People who have no emergency fund set up and who do not have access to other forms of credit might visit these payday advance lenders during a particularly dire situation but then realize how easy the process is and start to rely on the payday advances every time money gets tight.
What some borrowers don’t realize, however, is that using the lender in the first place sets the borrower up to need the same services again. Using the same $50 loan example, the borrower starts payday already minus $80. This means that unless the borrower tightens his belt he’ll probably find himself in need of another loan before next payday comes. The next payday the same thing happens, and so on and so forth. When a person lives paycheck to paycheck it’s difficult to not fall into a financial trap like this.
If you find yourself in this situation you need to recognize the absurd amounts of money you’re giving to the payday lender and realze that it’s not impossible to get out of this cycle. Before next payday comes along, sit down and figure out a budget. You need to figure out a way to afford to pay off the payday loan(s) as well as pay for all the other expenses you’ll encounter. You may need to scale back on something in order to make this work, but the good news is that since these loans are so short-term it doesn’t take long before you’re finished with them.
Once all your checks have cleared through the payday lender don’t go back. You will never get your finances in order if you keep visiting these lenders. Make it a priority to stop this detrimental financial cycle before you hand over a small fortune.
