Millions of Americans live paycheck-to-paycheck. Most of these individuals are one financial crisis away from financial ruin. In an attempt to bridge their financial shortfall, a lot of struggling Americans turn to payday loans. In fact, about 12 million people take out one of these loans each year. While they can be quick to obtain, thereby making them enticing, they usually carry exorbitant interest rates that can be as high as 450 percent. Even with principal loans starting at as little as a couple hundred dollars, these loans can quickly spiral out of control when they are not paid back quickly.
Let’s look at an example to show how expensive these loans can be. With a principal loan balance of $1,000 at an interest rate of 172 percent, after 13 payments, an individual will repay the loan with a total of over $2,200. While the industry claims that these high-interest loans are meant to address the risk of lending to those with minimal income, the truth of the matter is that many borrowers are employed and can repay the loans. However, many do fall behind due, in no small part, to the high interest rates.
Sadly, it appears that regulations meant to reduce the predatory nature of payday loans are being rolled back. This may put borrowers at substantial risk of getting sucked into the debt spiral that often accompanies payday loans. When this debt becomes overwhelming, it may be time to consider debt relief options.
For some, Chapter 7 bankruptcy will prove the most efficient and effective option. Through liquidation of assets, individuals are able to pay off some debts while have many other debts discharged. This bankruptcy process can allow an individual to escape burdensome debt and obtain a fresh financial start. Those who want to learn more about their debt relief options, including Chapter 7 bankruptcy, should think about reaching out to an experienced bankruptcy attorney.