Many Texans are struggling to get by financially on a day-to-day basis. For these individuals, the wait until their next paycheck can be grueling. In many instances they are just one unexpected expense away from financial catastrophe. Many people in such circumstances have tried to find debt relief through personal loans or payday loans. Payday loans have come under intense scrutiny lately, though, because of their high interests rates and the vicious debt cycle they perpetuate.
As payday lenders are losing their luster, new debt relief companies are filing the void. Amongst them are apps that provide funding to bridge the gap between paychecks. While that may sound like what a payday lender does, there is a distinction. These apps don’t impose a fee for the funds they provide. However, they do allow a consumer to tip. One of these apps, Earnin, defaults to a 10% tip, but this tip can be adjusted to 0%. Many consumers feel that a 5% or 10% tip is reasonable, but digging deeper into the numbers highlights some concerns with these apps.
When one looks a little closer, these tips can actually equate to interest rates that are higher than those imposed by payday lenders. For example, paying a $5 tip on a $100 loan within a four-day period is the equivalent of paying a 456% interest rate. Making matters worse is the fact that these new apps do nothing to help avoid the debt cycle. Those who seek these loans may have to rely on them paycheck-to-paycheck, meaning that these tips can quickly accumulate, thereby leaving an individual no better off than they would have been if they had taken out a payday loan.
Of course, those who turn to apps like Earnin need to be careful and consider paying a $0 tip if they cannot afford a tip. If debt has become overwhelming, then it may be time to consider more permanent debt relief options like personal bankruptcy. A Chapter 7 bankruptcy filing may lead to the elimination of many of a person’s debts and provide that person with the fresh financial start they need to avoid payday lenders and apps like Earnin.