You may have heard that payday advances are very risky. For some, they create insurmountable debt. Taking them out can be a serious financial error that leaves you looking for solutions.
But why don’t they work? The idea behind a payday advance sounds practical enough. You don’t get paid for a week, but some emergency — your car breaking down, etc — means you need the money today. The company loans it to you, and you simply pay it back when you get your paycheck. They just loan you the money because it’s convenient with your needs and your schedule.
The problems: Cost and use
There are two basic problems. One is that these are typically high-cost loans. Interest rates are very high. You may only be borrowing $500 or less, but the massive interest rates and the terms of the short-term loan still make it expensive. If you’re already in a situation where you don’t have $500 on hand, can you actually afford to pay off that loan once it comes due?
The second issue is just the way that people use money. If you think of the loan as an actual paycheck advance, you may be able to budget accordingly. If you think of the payday loan as extra money, though, it can lead to spending the loan and then spending your paycheck. This means you can’t pay the loan back on time. The interest and fees will then cause the cost to skyrocket.
What can you do if you’re spiraling into debt?
If you find yourself facing mounting debts and are unsure where to turn, remember that you do have legal options. There are better solutions. You just need to know what steps to take to carve out a path to a better future. Bankruptcy may offer you the solution that you need. An attorney can help you make the decision.