Unexpected bills, accidents, illnesses are due to pop up in everyday life. If you are one of the millions in the United States who live paycheck to paycheck these unexpected events can almost destroy your budget. You hear the words "emergency fund" and think, "What a great idea!". If you're like me, you don't have the extra money to put back into an "emergency fund". Once again, it was a great idea. Back to the original question.
What do you do when you have those unexpected emergencies? Ask family or friends for a loan? Usually not. This where your friendly neighborhood Payday Loan business welcomes you with open arms. Granted when you're in a pinch these companies can make the difference between going hungry and paying your bills. However, if you don't get the extra money needed to pay them off or if you can't afford to lose that money out of your budget you then become locked in the cycle.
The cycle is simple. You borrow "x" amount of dollars, write your personal check (in the case of a Payday loan), and they hold it till your next pay day. For every amount you borrow you agree to pay that amount back plus up to 450% interest. Sound's kinda scary, huh? Well let's look at it this way: You borrow $350, you pay back $411. Another example is if your borrow the maximum ($500) you pay back $589. The Payday loan company just made $89 that you didn't have to give away off the transaction. Now imagine doing that every payday for several months. I don't even want to think about how much that actually adds up to. Well since I mentioned it if you borrowed $500 each time with $89 in finance charges that equals to about $178 a month. Imagine what could have been paid off with that. Unfortunately this is how they lock you in. You can't afford to meet your bills if you don't have the extra money to pay the loan off. So in essence you pay it back, still need the money so you borrow it again. Hence the never-ending cycle.
Stay tuned for tomorrow's edition: How to Break the Cycle
Tags: payday+loans, loans, money, interest+rates
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