by Starla Ross

Created on: November 23, 2009   Last Updated: January 03, 2011

Payday loans have certainly had their share of negative news coverage over the last two years, forcing some states to enact new laws to protect consumers. Payday loan companies are still in business, however, and they do provide a needed service to some families seeking help.

Payday loans do provide a few benefits to consumers. For families who need money for emergency situations - and need money fast - a one-time payday loan can be crucial. If your car breaks down and you'll lose your job if you can't get to work, or your child needs to go to the emergency room, and you don't have the insurance co-payment needed to get treatment, a payday loan may be justified.

Another benefit of payday loans are the fact they are unsecured. In other words, you do not need to have something of value to secure the loan, such as a car or a house. Families with little or no assets can often apply for and be granted a payday loan without the chance of losing something else they own.

The risks of payday loans can far outweigh the benefits, however, and a smart consumer should meet these types of loans with cautiousness and skepticism.

Because the loans are unsecured and people often cannot repay this type of credit, the interest rates on payday loans can be very high - sometimes as much as 80 to 100 percent. Paperwork has been revised in many states, requiring payday loan companies to better disclose interest rates to consumers, but extreme rates are still common.

In addition, most payday loan companies make it a practice to submit their information to the credit reporting agencies on a regular basis. If you do not pay a payday loan on time, it is sure to hit your credit report fairly quickly, resulting in a lower credit score.

The biggest risk concerning payday loans, however, is the vicious cycle of financial mis-management they can create. Families often find themselves in an endless spiral of payday loans, with no way out - worsening an already struggling financial situation. When you take out a payday loan, you must pay it off with your next paycheck. Because that paycheck is now short, you find yourself short on cash and need yet another payday loan. The cycle continues to a point where families cannot dig themselves out of the payday debt they've created. An endless cycle of payday loans can add huge amounts of stress to a family and almost always ends in financial disaster.

If you find yourself in a spiral of payday loan debt, the best decision you can make for your financial

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