Payday loan companies have been receiving an awful lot of attention in the press lately.  As gas prices soar and consumers are feeling the financial crunch more people are trying to find alternate ways of making it through with enough money to the end of the month. In a perfect world everyone would have more than enough savings to carry them through if they ran out of fund, although in a perfect world people probably wouldn’t run out of money to begin with! The reality, however, is that oftentimes people must seek out additional cash in order to get all the bills paid on time.  Payday loan companies understand this concept, and they exploit the concept with their offerings.

Payday loans are fairly simple.  A person can take proof of employment and a bank account statement to a payday loan company and then write a check, which is post-dated.  So although the person may write the check on the 11th, the check is dated for the 15th or whenever payday is.  The check isn’t written for the amount borrowed either, since fees are taken directly from this check too.  So if a person borrows $200, they may likely wind up writing the check for $240, if not more.  The person leaves with the $200, then when payday rolls around the check is deposited, meaning the borrower just spent $40 to borrow $200 for a few days.  The interest rates for these sorts of loans are so outrageously high that the company does not even advertise them; instead they simply have flat rates for certain amounts. 

What a vicious cycle this can become! If the borrower isn’t utilizing these services out of sheer desperation and is instead using it to finance a fun weekend out, then this makes the process all the more ludicrous.  Payday loan companies capitalize on consumers who don’t think ahead to the next payday. 

When attempting to fix a credit history, these sorts of loans are doubly foolish.  If a consumer is making an earnest effort to correct past financial mistakes then they will likely have a solid budget in place, which they follow consistently.  A budget, which makes room for a small emergency savings, will alleviate the need for a payday loan. 

Fixing a credit history is less about fixing past mistakes than it is about refraining from creating new ones.  There needs to be an unyielding change of behavior, which eliminates foolish financial activities.  Fixing prior credit problems does not do much good if the consumer is simply going to march out and get into another financial pickle.  This is not the time to pay ridiculously high interest rates and fees to borrow money.  In fact, this probably isn’t the time to borrow money at all.

So what happens in the event of a bona fide financial emergency? There are many other resources, which can be utilized before forking over a check to a payday loan company.  Is there something you can sell? Is there another job you can take on temporarily? Are there agencies that will offer you a low-interest loan based on your need? There are people out there willing to help, you just have to find them.

Take heed: you can’t avoid paying a payday loan company.  Giving the company a check granted them access to your checking account numbers, and many payday loan companies have policies in place which allow them to dip into customers’ checking accounts to not only retrieve the amount of the check but any late fees which have accrued.  Late fees from payday loan companies, by the way, are not insignificant.  Be prepared to be completely shocked by the money withdrawn by the loan company.  All this can be avoided, of course, by simply avoiding these types of loans.

Yes, payday loans are no-nos when fixing your credit, but the same can be said for people who are not fixing their credit.  It is best to steer clear of payday loans if there is to be any hope for your financial well being. Don’t allow yourself to be swindled by payday loan companies who are out to separate you from your hard earned cash.  Having a rainy day fund is a big step towards being prepared and not needing the assistance of these sorts of companies. 

Related posts:

1. Knowing the Payday Trap and How to Get Out of Payday Loan Debt
2. The Skinny on Payday Loans
3. Still Fixing that Credit? Tips on How to Buy a Car with Iffy Credit
4. Is Debt Consolidation the Right Answer for Fixing your Credit?
5. College Student Loans: How To Get Loans When Your Credit History Is Not So Good

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