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Payday Loan Debt: How To Avoid The Dangers

By Paul Sarwana

On first examination, payday loans seem like a good idea because they fill a need. Sometimes people fall short of cash before their next paycheck, and may not have any credit. When an emergency pops up, the loans seem like a good solution for a short-term problem. What usually happens, however, is that things don’t often improve in such a brief period, and a consumer may actually end up drowning in payday loan debt.

Here’s how it works. Someone has a financial obligation to meet, or just needs to buy food. Payday is not for several days, so the customer decides to visit a payday lender to help tide things over. The lender agrees to give him or her the money, generally for just a two-week period. Chances are, however, that two weeks will come and go, and the financial situation does not improve for the customer. Then what?

Although illegal in around 13 states, payday loans are big business. The lender usually charges between 15% and 30% interest on the full amount. If the loan were actually being issued on a yearly instead of weekly period, the actual interest rate would be from 390 to 780%, doubling the amount borrowed several times over. At the time the loan is granted, borrowers present a post-dated check for the full amount plus interest, with the idea that it will be used to pay back the lender after two weeks.

When the two weeks are over the lender cashes the check. All too frequently, there is nothing in the account to cover the amount. Now the borrower faces bank fees for bounced checks, and still must pay the unending interest. Sometimes the only solution is to apply for another loan to pay for the first one.

This is the beginning of a downward financial spiral. The original reason for borrowing money is often forgotten, lost in the tidal wave of high-interest debt. There may seem to be no way out. Several states have declared this kind of living illegal, because it exploits the debt of low-income people with few credit options. One of the best solutions to this unpleasant situation is the consolidation loan.

These loans come in two basic types. The first consolidates the debts from a a single payday loan, and reduces the interest to a point where payback is practical. The consolidation company works with the lender to eliminate missed payments and sometimes late charges. The original loan is not dissolved, but the amount needed for payback is reduced.

The second type is tailored to those unfortunate people with multiple payday loan debts. It works in much the same way as an overall debt consolidation, by combining several payday debts into one monthly payment. The terms usually involve more time, and interest must still be paid. The rates, however, should be reduced. This loan is advantageous to the consumer for several reasons.

This type of consolidation will block collection agencies from calling, and eliminate late fees. Cleaning up in this manner can actually benefit a credit score if completed in a timely fashion. It will allow a person undergoing financial hardship to adopt and live within a reasonable budget. In reality, however, it is probably better to avoid such payday loan debt altogether. There potential for financial disaster is real, and the overall benefits negligible.

Get complete information and details about ways a payday loan debt can help you to meet your needs for money today! When you want debt consolidation help, you can find it easy and fast!

categories: debt consolidation,debt,financial planning,financial services,loans,credit,personal finance,finance,money

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Article Citation
MLA Style Citation:
Sarwana, Paul "Payday Loan Debt: How To Avoid The Dangers." Payday Loan Debt: How To Avoid The Dangers. 17 Aug. 2010. 18 Apr 2016 <>.

APA Style Citation:
Sarwana, P (2010, August 17). Payday Loan Debt: How To Avoid The Dangers. Retrieved April 18, 2016, from

Chicago Style Citation:
Sarwana, Paul "Payday Loan Debt: How To Avoid The Dangers"

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