The Dangers Of Payday Loans
We’ve all been there – finances are tight but you’ve got bills to pay and you need to pay them right away. It could be your rent or a car payment or maybe it’s just a pile of credit card bills but
Whatever it is, you need to pay up. So where are you going to get the money?
If you’re like millions of Americans with poor credit, you may consider turning to a payday loan to bridge the gap between the money you have and the money you need, but don’t go that route just yet. Payday loans are a uniquely dangerous way to borrow money and you should consider your other options first.
The Dangers Of Payday Loans
The primary reason you should avoid payday loans is because the interest rate on them is astronomical. One calculation determined that some payday loans charge borrowers the equivalent of 780% interest annually. This isn’t going to improve your financial outlook at all even if it seems to help at the moment.
Finding Alternatives
Besides financial duress, many people turn to payday loans because they feel they have no other options – typically because of a dismal credit score. Good credit comes with increased bargaining power, but those with poor credit have to take what companies are willing to offer. Still, there are other ways you can approach debt management if you’re smart about it.
First, look for companies that offer alternatives to payday loans. You might qualify for an installment loan or other small debt relief loan. Your bank can help you navigate this system. Though it’s less immediate than a payday loan, these options are much less expensive.
Negotiate Wisely
Just because poor credit limits your negotiating power doesn’t mean it totally takes it away. Credit card companies are actually open to negotiations so give yours a call and work out a payment plan. Contacting your creditor also shows that you’re an active and conscientious client who is doing your best and that will make them more inclined to work with you.
Get Credit Counseling
Finally, if you’re in a position where you’re considering a payday loan you’re also in a position where credit counseling could help. Find a local counselor and talk to them about what you can do to increase your financial stability and reduce your debt. They may be able to help you get a small loan, enter into a debt consolidation program, or negotiate with your creditors. It never hurts to ask.
Payday loans are a surefire way to ruin already shaky credit. Don’t get caught in this trap. Put yourself out there, explore your options, and ask for help. You’re often better off taking the minor hit and skipping a credit card payment than you are taking out a payday loan because of just how much damage those one time loans can do.
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