For millions of people, payday loans are becoming a normal part of the family income stream. This epidemic of sorts begins because of an immediate cash shortfall, and the quick solution is to borrow the money. Unfortunately, too many people fall into the trap laid by the payday lender. From commercials on TV to radio spots advising people to stay away from these ultra-high interest loans, it seems only a small percentage of people are taking the advice.
Once you’re in, you’re stuck
In some states the law places a maximum interest rate on payday loans, and with a “cooling off” period of a day or two before taking out another loan. The reason behind this is to allow enough time to pass so the debtor will think twice about the real need for the loan and decide not to go ahead with it. However, consider the following scenario.
A typical loan is $500 and the interest for using the money for say, two weeks is $55.00. This happens to be on the low end of interest in this situation. The debtor accepts the loan and in two weeks pays off the loan in cash for $555.00. Here’s the trap. Unless the debtor has $500 to make up what he or she just paid, there’s no choice but to take out another loan. Then in two weeks, pay off the loan for $555.00 and the cycle continues. This cycle is precisely what the commercials and radio spot ads caution against. In this cycle, the debtor is literally “renting” the use of the money for as long as the loan is required. Besides the high interest rate, payday advance lenders make a lot of money off average, everyday people trying to make ends meet.
There is a way out
An effective way to release oneself from this self-imposed trap is to prepare for a little sacrifice. If you can’t, you won’t make it through this. On your next trip to the lender, instead of borrowing the full $500.00, this time borrow only $450.00 or $475.00. It’s true you will have less money, but that’s part of the sacrifice to make this plan work. The upside to this is you’ll have less money to pay back. Depending on your financial situation, you can go on like this for a few more cycles until you’re sure you can borrow an amount less than before. Once again, continue with this plan until you are finally free from payday lenders altogether. In the end, you will have paid back your original loan several times over in interest alone. Once you’re finally able to make ends meet without a loan, make a vow to yourself and your family you will never allow yourself to be caught in that position again.