by Benjamin Miller

Created on: January 28, 2009

Say no to payday loans

Payday loans and tax refund loans are some of the worst legal scams currently available to everyday consumers. Loan sharks from the mafia give better terms than these guys. In many cases the interest rates they charge start at over 300% annually. Compare that to high-end credit card rates which usually max out between 30% to 35%. The simple reason for why they charge so much (other than because they can) is because the default rates for this type of loan are extraordinarily high. The majority of people who take these loans out do not pay them back, and if they do they usually end up taking another payday loan before long. This cycle destroys people financially.

If you'd like to see proof of how these loans ruin people's lives, go to www.prosper.com, an online lending site. You can find many examples of people who started owing very small amounts that quickly grew into enormous sums they could never pay off. A good movie that addresses this topic (and credit in general) is Maxed Out, a documentary. It shows the sad and unbelievable truth, that because of current laws, banks and other lenders like these actually make more money off people who don't pay!

Say NO to these types of loans, and find other ways to get your money in the short term. Whether its borrowing from a friend or family member, or sometimes even your boss can give you an advance on your paycheck. If you continuously find yourself needing money before payday, the problem lies in how you are managing your money. Take a different job, or find additional work on the side. Don't dig yourself deeper, which is what these loans help you do. Pretty soon you're in quicksand, with no way out.

Most people in this country are 90 days or less away from bankruptcy. That means if they lose their job, become ill, or have some other unplanned for expense that equals 3 months of income, bankruptcy looms. Don't be in that majority. Set money aside until you have 6 months worth of expenses in a savings account or other fixed investment. This way, when tragedy strikes (and it will eventually, it happens to everyone at some point), you can handle itwhether its illness, your car breaking down, needing to move unexpectedly, or being laid off. Then build your reserves up again. With this pattern, you will eliminate the need for a payday loan.

The payday lenders know they will make their money because people continuously use them and pay their outrageous fees. It's a terrible trap, don't fall into it even once.

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