Payday loans have been around for a while and are not a great idea. Some advocates say that payday loans are better than paying the late fees for certain bills. With interest rates as high as 1305% per year, there is nothing good that I see in them.
How Do They Work?
If you go to a place that offers payday loans, there is an up-front fee attached to the loan. You write a check for say, $115.00 and they will loan you $100.00 until your next payday. For an eight day loan, the fee is $15.00. No big deal – right?
If for some reason, you are in a bind and cannot pay the full amount, you can go in before your next payday and extend the loan for another fee of $15.00. You can do this up to four times before they collect.
If you are living paycheck to paycheck, this arrangement automatically cuts your next check short. Maybe it’s time to look at your spending habits and sell a few things you have in order to get out of this situation.
Kick The Little Guy While He Is Down
In my humble opinion, payday loans are an invitation to being an indentured servant. It reminds me of my days in the US Navy where people would loan others money at 100% interest. If you borrowed $20, then the next payday, you had to pay someone back $40.00. It was simple. You paid the guy back, on time, with interest, or something would happen to you or your stuff. It was a harsh reality but very few people did not pay back their money.
The loans described here target those who are already living paycheck to paycheck and none of them appear to have an issue with it.
What Can It Turn Into?
Imagine if you are already living paycheck to paycheck and you start taking out these payday loans. Suddenly, a situation arises where you cannot pay the loan back like you intended to. Then your next check is short because you have this outstanding loan that needs to be repaid. What happens if you now do not have enough to make it through to the next payday? Do you take out another payday loan because they say it is “better” than paying late fees?
Something to think about. Have you heard about people consolidating loans so they can get another loan to pay off their payday loans?
Savings Challenge Update
I do not have the figures for my savings account right now but I am saving every week. I can tell you that the amount is over $600.00 now. I will make sure I have the figures and the chart updated for next week.