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Avoid payday loans

October 15, 2008

It’s Wednesday. You have over a week until your next payday. You have a pile of bills due. Your kids need lunch money. You owe your friend $20.

A feeling of panic washes over you. You begin juggling numbers and adding and subtracting in your head.

You’re not going to make it.

Then you remember that place down the street that will cash your check today. You just have to repay them when you get your paycheck next week.

It seems like a financial life saver being thrown to you.

Reality: Payday loans are not a financial lifesaver. In fact, they’re more likely to be the equivalent of throwing a drowning man a brick.

There are a couple of reasons why payday loans are most likely not going to help you.

The first reason is that if the scenario above sounds familiar — and it’s a scenario you face often — the chances are good that you won’t actually be able to afford to repay the loan out of your next paycheck.

That leads to the second reason, which is incredibly high fees and interest rates. Payday loans can carry Annual Percentage Rates (APR’s) of higher than 300 percent. Yes, 300 percent!!

You could end up repaying almost twice the amount you borrow. And these days no one can afford to borrow $100 and pay back $180.

I conducted an informal poll of our counselors here at Advantage CCS. They’ve seen a fair number of people who are having financial difficulties and have also taken out payday loans. Not one counselor could remember one case where a payday loan actually helped the person. All the payday loans did was create an additional burden.

In

Pennsylvania, payday lenders have pretty much all been shut down. However, a new breed of payday lenders has popped up on the internet. That means you could be sitting in Pittsburgh and borrowing money, via the computer, from someone in

California.

If you are in need of a loan, it would be much less damaging to check with your local bank or credit union where you may be able to get a loan at a much lower interest rate with a longer payback term. The Pennsylvania Treasure and the Pennsylvania Credit Union Association have established something called the “Better Choice Program” to help steer consumers towards financial help that is more consumer friendly from reputable lenders. You can find information about the Better Choice Program at www.ibelong.org.

If you need help budgeting and managing your debt, you can contact the certified counselors at Advantage CCS and, for no cost, they will guide you through a comprehensive credit counseling session.

Written by Lauralynn Schueckler · Filed Under Debt, Misc. 

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