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How payday loans trap consumers in a no-win debt cycle

On Behalf of | May 27, 2022 | Bankruptcy

Times are tough right now. Inflation is high, and a lot of people are struggling to make ends meet. Many have no savings at all, and others have seen their meager savings evaporate rather quickly.

When an emergency strikes, the lack of savings can cause you to get pretty desperate. When you need too little to get a bank loan or don’t have any credit, you may consider turning to a payday lender for help.

Unfortunately, payday loans often just make a consumer’s financial situation even worse.

What’s wrong with payday loans?

Essentially, they are high-risk, short-term loans with an exorbitant interest rate that can often exceed 500%. Since the money (along with the interest rate and fees) has to be returned your very next payday, there’s no opportunity to gradually repay the loan in installments.

So what happens? You end up short of cash the following pay cycle, just as you are now. That means that you probably will end up having to return to the payday lender and take out a new loan. Every loan costs you money that you really don’t have (and aren’t likely to find somewhere), so that rapidly digs you into a financial hole that you can’t escape.

Some consumers even get so desperate that they end up taking out multiple payday loans to try to cover one lender’s payment with another – which is the equivalent of taking cash advances on one credit card to pay another, only with bigger dollar amounts involved.

If your financial situation has become unbearable and you’ve run out of credit and other options, you may want to consider bankruptcy. For many consumers, it’s a way out of a vicious financial cycle that offers real solutions – unlike payday lending.