Here’s a classic scenario for you: you’re living from paycheck to paycheck with no savings and very little in your checking account when suddenly you become too sick to work for a week, and your next paycheck is only half of what you need to live on. In order to make up the difference, you walk into a payday loans storefront and pick up some extra cash to get yourself through to the next payday. But when payday comes around, you still need another loan for just one more two week cycle to get back on track.
Why This Is Very Dangerous
I know what you’re thinking. “No, that wouldn’t happen to me. I always pay back my loans ASAP.” If so, great! However, people who are normally very responsible with their loans end up filing for bankruptcy because of the bad habits encouraged by payday loans.
Payday loans rope you into a cycle. Essentially, it becomes too easy to renew the loan for another two-week period. However, the interest rates are incredibly high. Currently, 17 states cap payday loan interest rates at 36%. 36%!
See how this gets dangerous? In order to prevent ever having to take out a payday loan, create an emergency fund that you can turn to should you have a sudden and unexpected shortage of cash. You reduce your risk for bankruptcy and you’ll lead a much less stressful life knowing that you have the cash on hand should disaster strike. And lastly, do whatever you can to avoid these storefronts!