Misfortune can strike anyone, at any time. For some families, going down to one income can make it difficult to make the rent payment or buy groceries. For others, a sudden natural disaster can result in a struggle to make ends meet. Whatever the reason behind sudden financial distress, these scenarios can cause people to turn to payday loans to help solve an immediate financial problem.
Although these loans may provide immediate cash, the long-term effect may be worse than struggling with the initial debt. The loan can grow at an alarming rate, potentially leading to creditor harassment and demands to repay an unmanageable debt.
What exactly are payday loans? These loans are given by facilities that generally offer a relatively small loan to the consumer. This loan is set as a high interest rate, often hundreds of times that of credit card rates.
Do these loans work? Research from the Federal Reserve highlights the difficulties that can be tied to use of these short-term loans in a recent study. The head researcher with the study notes that these loans provide support to families that are suffering from extreme misfortune. During this immediate need, payday loans can provide the funds needed to pay immediate bills.
However, when it comes to long-term financial stability these loans fail to help consumers. Instead, they often set consumers up for a downward spiral of indebtedness. In many cases, consumers are forced to take out additional short-term loans to pay off the principle of the first.
Why are these short-term loans still available? Unfortunately, credit cards and banks may not provide the funds that every consumer needs. Banks may not find small loans profitable enough to justify the investment and credit cards may be unwilling to take the risk.
As a result, these short-term, payday loans exist. As noted in a piece in the Washington Post, they fill a “void created by banks.”
What can struggling consumers do to find financial security? In some cases, consumers that find themselves struggling to meet their financial obligations may benefit from filing for relief through bankruptcy. Bankruptcy can offer a fresh financial start to consumers who are struggling with payday or other forms of debt.
Many forms of debt, often including credit card and payday loans, can be discharged through a bankruptcy proceeding. Contact an experienced bankruptcy attorney to review your situation and discuss the options that can best help you find future financial security.