emergencies happen if we plan for them or not - that's why they are called emergencies. When your car breaks down or illness that landed you in the doctor's office, your financial situation can go from precarious to say in a moment. This is especially true for low-income households, often living paycheck to paycheck, but the unexpected can sneak in person. What are you doing disaster and you can not afford to pay the difference?
Many are drawn to payday loans
payday loans are often advertised as quick fixes for serious emergencies. Those who live in low-income areas and military bases are the largest target customer base in the industry. However, these loans are not only used for specific situations. The Pew Charity Trust "in America payday loans" study revealed that over 60% of payday loans are used to cover ordinary living expenses, such as food or utilities.
The principle is simple: borrow the amount you need plus a fee per $ 100 borrowed now repay when your next paycheck arrives Unfortunately, what often ends up happening is that the borrower can not repay. the borrowed amount within 14 days. the options are default on the loan and run the risk of being sent to collections and damage your credit, or renew the loan (also known as "rolling over"). when the loan is renewed or rolled, a supplement is added on top of what you already have. Thus begins the pay cycle of financially destructive loan debt. this seems to be a quick fix is actually something that .
Nearly 80% of payday loans roll over
The Bureau of Consumer Financial Protection released the results of a study conducted in March 2014 that shed some light on Loans salary. The results are sobering. Four of the five payday loans are renewed or renewed in 14 days - that is a staggering reversal rate of 80%. In addition, only 15% of the borrowers repay on time without taking another loan during this period of 14 days. This series of loans that can be called a cycle of debt, is known in the industry as a loan sequence. The CFPB also found that most of these loan sequences end with a payment that is just as high, or sometimes more than the initial payment of the loan.
How can I avoid this cycle of debt?
Considering a payday loan, but concerned about these statistics? We can offer a few tips to keep you out of this cycle of destructive debt.
1. Explore your other options first
"Do not take a payday loan" may seem like an obvious suggestion, but it is the best way you can avoid this problem. If you are short because of an emergency or even a calculation error in your monthly budget, try to see if you can find a way to stretch your finances to date of payroll. Maybe you can borrow money from a friend or a family member or cut unnecessary expenses. Afraid that you can not make a bill payment? Many companies will work with and you extend your due date of payment or allow you to make a series of small payments.
another option is to adjust your withholding taxes. do you usually receive a large refund at the time of taxes? If so, you should take a look at how much is withheld from your check each pay period. Make a change to this could mean more income each pay period, which will help your current financial situation much more than a large sum to a distant date.
2. Consider another type of loan
payday loans are attractive because they are smaller and easier to get, no matter what type of credit you have. However, the high price paid by fees generally denies the convenience, especially when you consider that the average borrower needs five months to pay a single repayment loan. If you find you really need money, it may be more advantageous to take a personal loan. These loans are made by reputable financial institutions, and usually come with fixed rates. This means that the interest rate that you start with is the same throughout the loan term - meaning the first payment will be the same as the last. It is not as easy to get a personal loan if you have bad credit, personal loans but some services are offering loans for those whose credit is not that great. You might have a longer repayment period, but it means a fixed interest rate, you will not end up paying more than you bargained for in the end.
3. Borrow a reputable service
So you have exhausted your resources and still coming up dry. If you must take a loan, be sure to verify that the source has a good reputation. This can be difficult to understand because payday loans are predatory by nature, but there is a difference between a loans service on a regular salary and payday loan scam. When it comes to recommending lenders, we particularly like LendUp, which is designed to help borrowers learn the habits responsible lending and not get caught in an endless debt cycle.
4. Know your rights
The laws regarding payday loans differ from state to state. A little online research will show you what the laws are in your state. Read this information carefully before you even approach a lender. For example, 36 states in the country that allow payday loan services to operate, 27 allow loans to simply pay with APRs of 391% or more, while nine other states place more stringent requirements on lenders. It's good to know what the laws are in your state to make sure that you are not taken advantage illegally. Having this knowledge on your side will make interactions easier lenders.
It is also important to read all the paperwork that you carefully sign first - this can help prevent hidden cropping fees and surprise you on the road when you try to get out of debt
.5. Beware of overuse your current account
One of the biggest wage falls borrowers is the risk of overexploitation of your bank account. Keep track of all the checks that you write to a payday lender and find out when the check will be cashed, or at least the date you have written on the check. If a check through without enough money in your account to cover you not only run the risk of NSF fees, but you will incur overdraft fees from your bank. This is a double whammy and the opposite of what you want if you try to get back on track financially.
There is no such thing as a quick fix
Many states are now cracking down against payday lenders and work to pass laws that will help make these loans safer for borrowers. However, if you live in a state with strict rules, high fees and interest rates of these loans, it is easy to fall into an endless debt cycle. It is important to remember that there is no such thing as a quick fix when it comes to financial difficulties. If you think a payday loan is your best option, read the payday loan reviews to learn more about what lenders are available in your state and see how they compare to each other.
This post originally appeared on The Huffington Post.