Two Steps to Avoid Problems With Payday Loan Debt

Making payday loans work for you

By Kevin Salzman | Reviewed by Canaan Suitt, J.D. | Last updated on November 28, 2023

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The car’s transmission just quit, and there are still two weeks until your next payday. Your child has come down with an illness, but you don’t have the money in your savings or checking account for a doctor’s appointment. For some Americans, these crises are resolved by using credit cards, installment loans, or help from family members until the next paycheck.

But what happens when these resources aren’t available? When an unexpected expense arises, some individuals may turn to a payday lender out of necessity. How do payday loan borrowers take advantage of the benefits of payday loans without falling deeper into a debt trap and an even worse financial situation? Avoid these common pitfalls when using a payday lender.

1. Pay the Balance off as Soon as Possible

Payday loans are often advertised as a way to “bridge the gap” between pay periods. So long as a borrower only uses what he or she actually needs and pays the loan off when it is due or earlier, a payday loan may make practical sense.

However, with some payday lenders charging $15 or more every two weeks per $100 borrowed, payday lending can quickly cause problems if the borrower renews it after the initial due date or borrows more than he or she actually needs.

A $250 cash advance, borrowed for two weeks, would result in approximately $37 in fees over the initial two-week period. If the loan is rolled over for another two-week period, that $250 loan will now cost the borrower $74 in fees. If the borrower does this for six months, that $250 loan will cost the borrower nearly $450 in fees alone. Use payday loans for very short-term credit situations only, and you will avoid being consumed by the high fees these loans carry.

2. Borrow Only the Amount That You Need

Payday loans should only be used to get you through the immediate problem you are facing. For example, if you need $100 for a doctor’s visit, only borrow the $100. Borrowing more than the loan amount will result in additional fees, increasing the likelihood you will need to renew your payday loan at the end of the term.

Payday loans can be a practical option for cash-strapped individuals with unexpected expenses. Properly managing these short-term loans is key to ensuring payday loans do not cause more financial problems than they solve.

Find an Experienced Consumer Law Attorney

If you feel a payday lender hasn’t held up their part of the deal, consider contacting a consumer law attorney. For more information on this area of law, including debt management, debt collector practices, student loans, and credit history, see our overviews of consumer law and debt collections.

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