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The Payday Loan That Stole Christmas

by Adam Mack, J.D. Hillary Stirling, research assistant   It’s the most wonderful time of the year – and sometimes the most stressful.  Sometimes family is the stressor, when you pack all those different personalities into one space for hours or days.  For others, the crowded malls and big box stores are just overwhelming.  For many people, though, the financial strain of holiday entertaining and gift-giving is the biggest cause of stress. The temptation is to just put those added expenses on a credit card, but if you don’t have one or have maxed it out, you’re likely to at least consider taking out a payday loan.
As a bankruptcy attorney, I’ve seen the financial mayhem a payday loan can cause.  In my jaded opinion, payday loan providers are predatory lenders at their worst.  If you’re even thinking about darkening the door of a payday lender, consider this some free advice: DO NOT DO IT!
To illustrate why I am adamantly against payday loans, consider this scenario.  Struggling parents decide that, to give their kids a good Christmas, they need to take out a payday loan.  So they go online and borrow a modest sum of $300, figuring that they can stay within that budget for everything and pay it back out of their next paycheck in two weeks. For the privilege of borrowing that money for two weeks, they have to pay $45, resulting in an APR (annual percentage rate) of 391%.To put that in perspective, an average credit card charges an APR of around 12-15% and a bank loan’s APR is currently in the 5-7% range.  So if these same people had put their $300 Christmas spending on a credit card instead and had taken an entire year to pay it off, they would only pay $36 in interest as opposed to $45 for two weeks.  If they had paid off the $300 balance on a credit card within two weeks, the interest at its highest would have been less than $4. That’s $40 that could have gone to Christmas expenses that instead wound up in the pocket of the payday lender.
But that assumes everything goes as planned.  All too often people who take out a payday loan are unable to pay it back on time because other expenses pop up. If the parents in this scenario rolled that $300 into another payday loan, that’s another $45, and if they were to continue rolling the loan over for a year, they would have paid a whopping $1170 in interest (as opposed to $36 on a credit card).  That’s enough to pay for more than three Christmases.  Now please don’t misunderstand; I’m not suggesting everyone should run up their credit card bills.  Credit cards can and do get people in trouble, too, but as an alternative to payday loans, there’s no comparison.
Far better than any toy you can buy with borrowed money, the best gift you can give your family this Christmas is financial stability.  It might not come with ribbons and bows, but it will be a gift that keeps on giving for years if not a lifetime. If you’re already under water with payday or other loans, consider giving yourself a gift by contacting us today. We can help you find financial peace of mind through bankruptcy or other means.