To get a payday loan, you need to prove that you have some level of income, and then you’re given an amount of money that you have to pay back when you get your next paycheck. For example, maybe your paystubs show that you make $1,000 every two weeks. A payday loan company may give you $800 with the stipulation that you’ll pay it back at that time.
This makes payday loans sound like a great solution. You know that you’re going to be paid, so you know you’ll be able to afford the loan. However, you have expenses right now — not in two weeks. The payday loan allows you to get the money to address those expenses, you pay the loan back when you get paid by your employer, and it feels like everything should go smoothly. But why doesn’t it?
Interest rates get very costly
The problem with payday loans is that they have fees and high interest rates. Also, there often isn’t a grace period, as there can be with other types of loans.
So what happens is that people get the payday loan, but then other expenses come up before they get paid? They’re not able to pay off the loan, and the interest quickly starts compounding. Even if you try to pay it off, you may find that the total amount you owe is just growing and you can never seem to get caught back up.
If you do find yourself in this position, then you may begin thinking about the different options that you have to get out of debt. One of them may include using bankruptcy to clear up this debt and begin moving forward with your life. Be sure you know exactly what steps to take if you’re interested in this process.