what you need to know about payday loans

What You Need To Know About Payday Loans

what you need to know about payday loans

Many families struggle every month, trying to make ends meet. They run out of money before the next payday and don’t know where to turn. I want to tell you exactly what you need to know about payday loans and hopefully give you some ideas so you don’t have to feel they are an option.

Remove The Need

Ideally, you want to put yourself in a position so this never has to be an option. Here are a couple of ways you can avoid the need for quick cash payday loans.

  • Try to build an emergency fund. Even though money is tight, it is a good practice to have at least $500 in an emergency fund. This little nest egg can be used for those unexpected bills and expenses like car repairs. You can start small with saving just $10 a paycheck. Some employers even offer to do this for you and the money is pre-tax and direct deposited to the account of your choice.
  • Make a household budget. A budget is the best way to keep track of income and expenses and determine where you can save. Set aside money every payday and plan ahead for those budget busters, like holidays and birthdays.

Credit Counseling

credit counselingWhile not for everyone, credit counseling can be useful during a financial crisis. Evaluate all of your options and then shop around for a good agency. Check with the Better Business Bureau or your state’s Attorney General’s office to see which companies have had complaints filed against them. Educate yourself on what consumer credit counselling is and what it entails and what it means to you.

Military consumers can get help. If you are active duty or retired military, contact Military OneSource to find the installation nearest to you with a family service center or support center that can help with financial problems. Call 1-800-464-8107 for Military OneSource. Military relief societies may also be able to provide counseling. Navy and Marine personnel can contact the Navy Marine Corps Relief Society. Coast Guard personnel can contact Coast Guard Mutual Assistance.

Alternatives To Borrowing

  • Consider changing your withholding from your check. This will give you a larger paycheck instead of paying in that money in order to get a larger tax refund.
  • Instead of just being late on rent, mortgage or utilities – make a few phone calls. Some companies will allow you to move a payment to the end of your loan, but find out what they charge. Utility companies sometimes have programs which allow you to make fixed payments throughout the year. You can also see about emergency utility funds.
  • Check out my post on ways to make extra money.

Find Cheap Money

  • Ask friends or family for a small loan. Getting an agreement written on paper can sometimes prevent family issues later.
  • Apply for small loan at your bank or credit union.

Get Out Of Debt

erase debtPayday loans are a trap! Avoid piling up more payday loans to pay off current payday loans. With a good budget plan in place, you can avoid this trap. Tell the lender you need to work out a payment arrangement. Many states require these companies to provide extended payment plans.

If the lender refuses, file a complaint. Regulators may be able to help you work out a payment arrangement with licensed lenders. And, if you live in a state that doesn’t allow payday lending, the state regulator can take action against unlicensed lenders.

Tell Your Story

If you have had a bad experience with a payday loan or title loan company, you can tell your story to the Consumer Financial Protection Bureau (CFPB). The CFPB is a federal agency whose primary mission is to protect consumers of financial products, including payday loans and car title loans. Tell them your story.

Internet Payday Lending

Internet payday lending involves added security and privacy risks. Consumers can electronically “sign” contracts and receive required disclosures electronically. Clicking “OK” on a web site can bind you to an expensive loan contract. Internet payday loans can also be more costly than loans from store-fronts.

Every online loan involves giving the lender electronic access to your bank account, both to deliver the loan and to withdraw fees and payment. Identity theft and fraud are real risks when consumers disclose key financial information and authorize unknown lenders to access accounts.

The FTC prosecuted online lenders who would make several small withdrawals from consumers’ bank accounts and assess a finance charge each time, rather than withdraw the entire payment at once. One consumer would have paid $975, for an original loan of $300.

Your Rights…

Consumers have the right under either federal law or industry rules to stop a payday lender from electronically taking money out of a bank account. This does not settle the debt but these rights help consumers stop the drain of repeated finance charges or bounced check fees while working out payment arrangements.

…VS. Reality

While you have the right to revoke authorization for the online payday lender to electronically withdraw money from your bank account to repay a loan, it is not always easy to exercise that right successfully. Some banks’ stop payment systems are set up only to identify a check number and a specific dollar amount, not the name of the payee. Some Internet payday loan contracts state that loans may be broken into several withdrawals, so a bank may not be able to identify the transaction to be stopped. If you have other pre-authorized debits for the same amount, the bank may mistakenly block a debit you intended to make.

Debt Collectors

debt-collectorConsumers have legal rights when contacted by a collection agency.  Everyone should try to pay debts legitimately owed but sometimes consumers may be unable to do so due to job loss, unexpected medical bills, or divorce.  Sometimes, fraudulent collectors even try to intimidate consumers into paying debt that does not exist or is not overdue.

They may have obtained information from online loan applications that were never approved, that was purchased for fraudulent purposes, or that was stolen.  The Fair Debt Collection Practices Act is a federal law that applies to collectors and attorneys.  It does not forgive lawful debts but protects consumers from harassment, abuse, and misleading and unfair practices.


24 thoughts on “What You Need To Know About Payday Loans

  1. Hi Angela,

    I just wanted to drop by and say that that was a really well detailed post that I got a ton of useful info from. Infact it’s a great looking site with some just as cool information on it.

    I hope you reach your goals

    1. Hi Toni,
      I am so glad you liked it. Payday loans are a terrible cycle to get sucked into. I’m glad you like the site as well!

  2. This article is extremely informative on the topics of ways to avoid a payday loan. I personally have implemented almost everything mentioned, Remove The Need for a Payday Loan, Credit Counseling, Alternatives To Borrowing, Find Cheap Money from family or friends, Get Out Of Debt, and Debt Collectors.

    This also includes actually taking out a PayDay loan and realizing just how costly it was.

    The only option I would also recommend (depending on where you are in the cycle of life) is consideration of Bankruptcy (at least in the United States). There are two options, one is a restructuring (Chapter 13) of your debt and the other completely wipes most of your debt out (Chapter 7 – but you have to give back cars, homes, etc. with this option), but it does give a person a clean start.

    Great Article!

    1. Hi Susie,
      So glad you liked it. I have been through all of that as well, including bankruptcy! Hard lessons to learn but they are burned in to my head now!

      1. With each process I learned a lot. It also changed the way I think about “things” and “money”. I have been a homeowner for over 20 years and yet I often times wonder “why”.

        Actually, I know the “why” but looking back a lot of it seems a bit excessive.

        1. It’s funny you say that. I bought a home many years ago and it went in the bankruptcy. I will never own another. Like you said, why? I have changed my way of thinking too. I just need enough to get by. Most times it’s barely but I’m happier than when I made over 50K a year.

          1. I filed Chapter 13 so I still have the house (just barely). I went from a 6 digit figure to one cut by 80%. I wish I had done a Chapter 7, I would have been much happier.

            Too many reasons to explain here about “why” I picked 13 over 7 (basically my son’s car was the ultimate driver, not the house). Now he has his own car under his own name and I still have the old one up under the bankruptcy and have to pay insurance on it (although it isn’t being driven), until the end of the bankruptcy.

            I used to really stress out over all of this. My health can attest to that, but now, I just live day by day an do what I can and so far that seems to be working and my stress level is much lower.

          2. I couldn’t agree more. My stress level went way down. I did Chapter 7 but fortunately was able to leave a car out which I had helped my parents get. Life teaches us hard lessons but I am happy now. It’s amazing what we can learn to live without.

  3. Lets keep this going. I have been caught in this trap once before in February of 2011 by a company called VIP Loans Shop. I get calls every few months from different legal offices attempting to recover “an unpaid debt.” I have repaid over $2000 on a $1000 loan only because they kept taking money from my accounts. Now the are claiming i still owe $1785 plus court costs. I actually had to close an account due to them continually withdrawing money from the account.

    1. Hi Ken,
      That is terrible! You should file a complaint against them as I mentioned in the post. Here’s the link. You can also go here for relief.
      Good Luck!

    1. Thanks Richard!
      I agree. Everyone should know the risks and how hard it is to get out of the cycle.

  4. Angela is exactly right! I do this! I moved to Seattle from Chicago and I saved up to 10k and jezz did I blow that away from moving to Seattle to having to go to ER plus ER for dog then buying a car. How I do it is, i’ll put 5% to 10% of my paycheck into my saving it adds up quick and believe me you won’t regret it…
    Angela do you do a % of your paychecks to your savings?

    1. Hi Nicolas,
      I think it is great you are able to put aside money each payday. I don’t do a percentage, I put aside a certain dollar amount.
      Thanks for sharing,

  5. Hi Angela,

    A few years ago I fell in this trap and after paying this off and redoing it every week for almost three months one of the girls that worked there told me I could pay a little off each week…It is such a scam if there is anyway to avoid it you should!
    Great Post

    1. Hi Scott,
      Thanks for sharing. It can be hard to get out from under these ‘loans’ sometimes. I’m glad you were able to get yours taken care of.

  6. These Payday loans seem so convenient on the surface but the cost of this convenience is certainly not worth it. Sometimes it really is all about budgeting, changing your attitude, and just focusing on the things you need, as opposed to wants and desires. I have to say, I am indeed fortunate that I have never had to deal with a situation like this.

    Apart from saving $10/paycheck, another useful saving strategy I discovered recently, is saving money each week according to the number of weeks in the year. So for week one in the year, you save $1 the second week $2 the third week $3, the fourth week $4 and so on. By the end of the year an individual would have accumulated $1,378.00. using this strategy. While that may not be enough to get someone out of debt, it’s a start in the right direction, as opposed to saddling yourself with debt from payday loans.

    1. Hi Vanessa,
      So glad to hear you have not fallen victim to these shady tactics. I think your savings plan is awesome. It would definitely be enough to cover any unexpected costs that might arise, such as auto repair. Thanks for sharing your ideas.

  7. Hi Angela,

    I stop by today to look for this info. To get some good ideas for a friend that has over done his spending.
    He like most people don’t realize what options they have in order to avoid these places.
    I’ve been a little more fortunate than some in that I have been able to stay clear of these institutions.
    Now he don’t have to hear it from me as I will give him your site so he can find out himself.
    Keep up the good work and thanks for the great info.

    1. Hi Markus,
      So glad you have been able to avoid these sharks! Please do have your friend stop by for a read.

  8. I don’t think people are aware of the price they pay for these temporary fixes and of how many options they have. Thanks for spreading the word and shedding light on this issue. Much success to you.

    1. Hi Nada,
      I agree. Too many people don’t know there are other options. These companies take advantage of people in difficult financial situations.

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