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Debt Diversions: Why Staying Away from Pay-Day Loans is Crucial

There is a lot that goes into being able to handle your debt balances. In many cases, those who don’t borrow more than they can afford to repay tend to be better off financially. However, avoiding potentially predatory payday loans can also play a role in paying down a debt balance in a timely manner.

Payday Loans Have Short Repayment Windows

In most cases, you will have 15 to 30 days to repay your loan. For those who don’t have a job or another source of steady income, that may not be enough time. Therefore, they have to resort to flipping their loans, which come with additional fees. In some cases, a borrower may pay several times what they actually borrowed after fees and interest are accounted for.

Payday Loans May Not Fall Under American Law

One of the worst decisions a person can make is to do business with a Native American payday lender. This is because a Native American lender is not subject to U.S. Usury or other lending laws (which is also why they can operate casinos in states that don’t allow them. In other words, they can charge as much interest as they want, and your ability to discharge the loan may also be limited. In many cases, people mistakenly apply for loans from such lenders thinking that they are safe because tribes are located on American soil. However, they live on sovereign lands, which is why American laws don’t apply.

There May Be No Borrowing Limits

While individual loans may be capped at $1,000 or less, few states have laws limiting how many loans a person have out at once. Therefore, it is easy to have several loans with outstanding balances at one time. This may make it difficult or almost impossible to get out of debt without resorting to bankruptcy.

They Don’t Help Build Your Credit

For those with poor credit, it may be better to get a secured credit card or a personal loan. In addition to better interest rates and other terms, each payment is reported to credit agencies. Over time, you may be able to qualify for unsecured credit cards or other loans at more reasonable terms.

While debt consolidation or forgiveness may help a person overcome their financial problems, it may not be enough on its own. This is because it is easy to go back into debt if money is easy to come by. Therefore, it may be best to learn how to avoid the temptation of payday lenders and work toward a brighter fiscal future.

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