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How Payday Loans Are Designed to Keep You in Debt

If you are considering taking out a payday loan, reading this post will hopefully change your mind.

Pretty much everybody will reach a point in their life where they need emergency cash. Payday loans might seem like a good choice as you get the money fast and don’t need good credit to receive one.

There is always a catch, of course. You are expected to pay it back quickly, and missing the due date can be catastrophic. The interest on payday loans is so high that 76 percent of payday loans are requested to pay off old payday loans.

So before you potentially land in a debt-trap from which you can’t escape, read on. This post discusses why you should avoid payday loans and what some alternatives are.


What Are Payday Loans?


Payday loans are short term loans in small amounts that require no credit check. The name refers to the fact that you are expected to repay them with your next paycheck.

Payday loans are also known by other names including payday advance, salary loan, or a cash advance loan.

Some payday lenders will want to check your pay stubs or bank statements before offering you a loan. However, some don’t verify income at all. The interest rates on these loans are high since the lender is taking a large risk in lending money to someone with bad credit or low income.

Missing the repayment date of your loan can send you into a debt spiral that makes reducing and getting out of debt all but impossible.


Why Are Payday Loans Bad?


You may find that although you intend to pay back your loan on time, other unexpected expenses may arise that prevent you from doing so.

Unlike a bank loan or line of credit, you are expected to pay back a payday loan all at once. They also usually have associated fees. Many lenders have options to extend the loan, which incurs more fees and racks up interest.

In short, you could end up paying 300% to 900% of the original loan annually in interest and fees. Failing to pay your loan can result in being hounded by collection agencies and facing criminal prosecution.

Instead of facing these potentially horrible consequences, consider some alternatives to payday loans.


What Are Some Alternatives to Payday Loans?


Those who have bad credit may still be eligible for loans from credit unions or online lenders. You can also consider using a credit card if you are eligible as the interest is still better than a payday loan.

Of course, it is always better to avoid going further into debt when you can. You could consider other options to get money quick in an emergency.


Some Methods to Get Cash Quickly in an Emergency Include:

  • Ask your employer for an advance
  • Sell or pawn personal belongings
  • Take out a credit card advance
  • Ask friends or family for money


At the end of the day, bandage solutions are not going to cure your financial problems.

You can avoid getting trapped in the cycle of debt by creating a tight household budget (link to March post: How to create a household budget). Writing out your expenses and sticking to a spending limit will help you keep money aside for a rainy day.

If you are thinking long term and want to get your credit score back up so you can apply for loans, consider trying a credit repair service. These specialists have legal expertise at disputing false items on your credit report and dealing with both credit agencies and lenders.

At RepairCreditQuick, we will provide you with a free credit report and a free consultation with a top-rated credit repair company. They will go over your credit report with you, and only take you on as a client if they can help with your issues.

If you want to get out of debt ASAP, contact us for your free no-obligation consultation today.

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