Payday Loan Question

August 5, 2009

Payday loans can bleed you dry.  For example, here’s a recent comment from reader Cheryl:

“We started out with Payday Loans when we hit financial bottom when I lost my job. We had just moved with a larger mortgage, plus have 2 kids at home to feed.

 

We now have 6 Payday Loans that are killing us. I’m laying awake at night worrying. We pay one off and it seems something else comes up. Id go without food and eat cereal to pay them off, but I have 2 teenage boys who eat all the time and I even bulk cook and freeze things for them.

 

No junk food, pop etc. I home cook meals every night. It is such a hole to get in, and so frustrating when you cant get out. Our credit has hit rock bottom now.

 

We have considered bankruptcy since some of our other bills have suffered now also. Ive heard you can file against Payday loans, but where will I get the money to file?”

Cheryl, I don’t know how much your loans are for or what interest rate you’re paying on those loans but I do know that the rates on payday loans can be insanely high, higher than any credit card.  As you’ve experienced, the interest accumulates so quickly that your payments go towards the interest, making the original loan difficult to pay off.

If some of the loans are bigger than others you could use Dave Ramsey’s Debt Snowball method of paying off the lowest balance loan first, then once it’s paid off apply the payments you were making towards the next highest balance.  One possible way to raise money to pay off that first loan is to get together some of your personal belongings and sell them on eBay

Of course from a pure numbers perspective, it would be good if you could consolidate all of those really high interest loans into one loan at a lower interest.  However, you mention that your credit is bad so you may not be able to find a bank or credit card that will give you a line of credit.

Alternative sources of loans such as Lending Club are useful for some people but if your credit is really bad that won’t help much either.  If you have family that’s willing and able to help out, you could look into borrowing money from them through Virgin Money USA.

Since it sounds like you’re struggling with paying a bigger mortgage without your job, I’d contact the National Foundation for Credit Counseling.  The NFCC has credit counseling, home owners counseling, and bankruptcy counseling all of which may be of some assistance to your family.  Good luck!

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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2 Responses to Payday Loan Question

  • Steven Francis

    Really feel bad for Cheryl. But the point here is that whether Cheryl was aware about the repayment amount and time when he applied. If yes then why he/she applied for so many loans. Anyway, I really feel he need some good suggestions from experts to bring him out of this emergency crisis.

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