YOUR MONEY: Experts urge avoiding payday loans

Financial experts are encouraging any option to help pay bills except payday loans.
Published: Jul. 20, 2022 at 2:42 PM CDT
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BATON ROUGE, La. (WAFB) - As we see the highest inflation in four decades, you’re trying to stretch your budgets but financial experts are encouraging any option to help pay bills except a payday loan.

A payday loan might sound great since it’s basically instant cash when you need it but with an average interest rate of 391 percent%, that fast cash can take you down a burdensome debt journey.

To compare, APRs on credit cards can range from about 12% to about 30%. If the loan isn’t repaid in full on the first payday, a fee is added and the cycle repeats.

So, within a few months, borrowers can end up owing more in interest than the original loan amount.

“So, you can really get yourself in a cycle of debt because it’s so much to pay back,” said Andy Mattingly with Forum Credit Union. “Then, you’re just constantly borrowing every week or every couple of weeks. So, you can just get in this cycle, and you can’t get away from it.”

Payday loans are generally a short-term, high-interest loan that’s usually due on your next payday. Experts say these should be your absolute last resort and even personal loans are a better decision.

Personal loans work for some emergency situations, like a car repair that costs a couple thousand dollars. With personal loans, you have maybe 12 to 24 months to pay back. Consider going through a credit union for loans with low-interest rates.

Or consider coming up with a side hustle or a temporary second job. Every little bit counts when you’re trying to manage your money and increase your income.

“There’s an actual problem that needs to be solved and that additional income for two months, one month can actually solve that problem,” said Peter Dunn, CEO of Your MoneyLine.

To be proactive, try to keep your spending to a minimum right now, especially if your budget is already pretty tight. You might be tempted to make those impulse purchases with retail stores offering decent sales on clothing and furniture. If you don’t need it, don’t buy it.

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