The idea of a payday loan does sound helpful, as it is just an advance on money that you did earn. The loan provides it to you when you need it, not just when you get paid at work.
For instance, say that your employer owes you for your full-time job, but you won’t actually be paid for two more weeks because you get bi-weekly payments. These are very common, resulting in two paydays per month. But, perhaps you needed to make emergency car repairs. You couldn’t wait until you had your paycheck in hand, so you took the payday loan as an advance. This allows you to fix your car and continue working.
So what’s the issue?
All of this sounds feasible, but there are two key problems that you need to consider – and they are the reason payday loans often lead to bankruptcy.
First and foremost, these loans come with very high interest rates. This can make them far more expensive than you realize. Even those who do know how expensive it will be often feel like they have no choice.
The second issue is just that these loans are targeted at those living paycheck to paycheck – which, as it turns out, applies to the majority of Americans. What happens if you pay for the car repairs with the loan? You still need to pay for the utilities, the rent or the mortgage, gas for your car, food for your family and much else.
Many times, people intend to pay off the loan, but they can’t because life is so expensive and they need their actual earnings to pay the bills. At this point, the interest on the payday loan starts massively increasing the amount that is owed. Quickly, the debt becomes so much that it is unaffordable, and the borrower is trapped in a vicious cycle.
What can you do?
It often feels impossible to break this cycle, but the truth is that you do have options. Just take the time to consider bankruptcy and the legal steps you’ll need to take.