6 Ways to Avoid Getting Into Trouble With a Payday Loan

Payday loans can be a way to get cash fast and cover unexpected monthly expenses, but if they're not used the way they're intended - as SHORT-TERM loans - consumers can find themselves in trouble. These loans are meant to be for a very short period - usually only for a week or two, until the customer's next payday. The fees charged by payday loan services are either a percentage of the total loan or increment-based (a flat fee for every $50, $100, etc.). This can be cheap compared to late fees or other penalties, and in some cases emergency expenses might allow you no other option.

If you fail to pay back the loan in time, however, and the payday lender rolls over the loan amount and extends the financing, what was intended to be quick loan could turn into an interest nightmare. For example, if a finance charge of $15 is applied to a loan of $100 and you need to rollover the loan because you can't pay it back in time, you could end up paying $30, $45, $60 or even more on the loan! In an even worse scenario, if you have agreed to have the finance fees debited from your checking account, you could face even more expensive overdraft charges from your bank - and STILL owe the amount of the original loan.

There are several ways to avoid getting into trouble with a payday loan:

1. Remember that a payday loan is a short-term loan, and should not be used unless you will be able to pay back the full amount by your next payday. If this won't be possible, you should look into another type of loan, such as a small bank loan or a credit card cash advance.

2. Do some shopping around! Not all payday loan services charge the same rates for payday advances, and you may be able to find a better offer if you do a little research beforehand.

3. Resist the temptation to borrow more than you actually need. If you borrow more, you could find yourself in a situation where you can't repay when the first loan term is up, meaning you'll have to pay rollover fees.

4. Curb your spending. Make sure that when you get your next paycheck it will actually be able to cover the amount of your loan. The money you get should go towards emergency expenses and not be considered extra money in your wallet.

5. Don't rely on payday loans for your everyday expenses, and don't use them often. If you do, you could find yourself trapped in a cycle of needing money before every paycheck. This means that a significant part of your paycheck would go to cover payday advance finance charges when it could be going into your pocket.

6. Start saving every month, even if it's a very small amount. This way when you need cash fast for an emergency expense you'll at least be able to cover some of the amount - and it will be easier to pay back the cash advance. Getting a payday loan can work wonders to get you out of a temporary financial pinch, but if you don't borrow wisely, a payday loan can end up hurting more than helping. Before you borrow, take time to consider whether a payday loan is the right solution for you.