You have probably seen them in downtown storefronts or shopping plazas, but you never imagined you would use one. Perhaps, in the back of your mind, you even wondered if they were legitimate. However, at this desperate point, even that concern may not be enough to prevent you from walking in and asking for a payday loan.
You just need a little bit — enough to hold you over until your next paycheck. On the other hand, maybe you are considering going back for more because the last one didn’t cover quite as much as you needed. Understanding the risks of payday loans may make them less enticing and prompt you to try other methods to avoid desperate financial situations.
The lure of easy money
A payday loan is a small amount of money borrowed for a short period of time. For example, you may only need a couple hundred dollars for a week or two. Usually, the lender requires you to write a check for the amount you are borrowing plus the added interest and fees. At the end of the loan period, they will cash your check as payment for the loan.
However, if you aren’t able to pay on the appointed date, you can request to renew the loan, in which case more fees and interest will be added. Additionally, you will likely be paying fees that compare to interest rates between 400 and 1,000 percent. This means that, while a payday loan may help in a pinch, it doesn’t really solve your money problem.
Consumer advocates recommend trying these alternatives before you risk a payday loan:
- Work with your creditors for loan modifications.
- Apply for an unsecured loan at your bank.
- Build an emergency fund.
- Keep a credit card available for emergencies.
- Look for a part-time job for more income.
Even if you implement the above strategies, you may still find yourself overwhelmed with debt and unable to make your monthly payments. You are not alone if your financial situation makes you feel desperate.
Finding a real solution
Thousands of people struggle with too much debt. After you pay as many bills as you can, you may be left with no cash for daily essentials or emergency situations. Taking advantage of a quick and easy payday loan may seem like the only way to solve your problem, but you may only compound the issue.
If this is the situation in which you find yourself, you have the option of filing for bankruptcy. Speaking with an attorney about the alternatives available for your circumstances may allow you to sleep better tonight knowing there is the potential for a positive solution for your financial burdens.