One of the worst financial decisions you can make is to take out a payday loan. In fact, the only thing worse than a payday loan is two payday loans.
But sadly, that doesn’t stop some Americans from falling victim to these scumbags.
According to Pew Charitable Trusts, around 12 million Americans take out payday loans each year. Of those who borrow, they average eight loans of around $375 each and pay around $520 in interest.
We have three words to say about this: That is nuts.
Even crazier is the fact that 69% of borrowers said they took out the loans to cover living expenses like utilities, credit card bills, housing and food. These are loans with interest rates that can run into the triple digits.
Come on America! We can do better than that. If you’re taking out a payday loan to cover regular living costs, then your living costs are way too high. And taking out a payday loan to pay a credit card bill is like cutting off your leg to distract you from the pain of having your arm cut off. It’s just piling stupid on top of stupid.
Additionally, the research says 81% of people who used these ridiculous loans say they would’ve cut back on expenses if they didn’t have access to the loans. So instead of changing their behavior—which is what brought on the problem in the first place—they temporarily cover it up with a terrible “solution” that only makes their problems worse.
How to Get Out of the Trap
A healthy financial plan starts with behavior. Any plan that involves taking out a payday loan at 200% interest to pay off a credit card at 20% interest is just a terrible plan.
Instead of taking out a loan, why not stop buying stuff you don’t need or take a second job? Why not save a $1,000 emergency fund? Why not just flat-out get out of debt?
The first step is to decide right now that you won’t take out another payday loan. If you don’t change, they’ll just keep taunting you with more “free money.”
The cost of taking out a payday loan is much more than just a ridiculous interest rate. They prevent you from winning with money in the long-term.
Don’t fall prey to the payday loan trap. That’s a game you’ll never win.