If you’ve ever wondered about the reasons why consumers incur payday loan debt, you’re likely not alone. In big cities, there seems to be a cash advance location around every corner. According to DailyFinance.com, the payday loan industry has grown from 500 payday locations in 1990 to more than 22,000 by the beginning of 2010, and the number continues to grow. The industry has more than quadrupled in just one decade despite state legislation and controversial news reports. So, what leads to consumers incurring payday loan debt? The reasons vary according to each individual’s circumstances, but here a few common culprits.
Payday Loan Debt and Late and Overdraft Fees
Consumers who live paycheck to paycheck might worry about a late fee if they pay their rent late. They could pay by check, but what if the check bounces? Banks often charge a $35 overdraft fee. The landlord would likely apply a bounced-check fee in addition to a late charge. In total, the person could end up paying $100 or more in fees.
With a payday loan, however, the consumer might pay a $20 finance fee, depending on the borrowed amount and the loan term. This means that if he takes out a loan for $100, he would payback $120 when he receives his next paycheck. In view of all this, some consumers would rather incur payday loan debt than deal with late and overdraft fees.
However, a person living paycheck to paycheck generally needs every cent of every paycheck to make ends meet. When the next pay cycle comes around, he might find himself having to choose between paying back the payday loan or rolling it over, which generally means incurring a roll-over fee and additional interest. Late fees and charges is how cash advance companies make a lot of their money. If not careful, such circumstances can make it difficult to get out of debt.
Payday Loan Debt and Emergency Situations
Unexpected medical emergency, car repairs, an unusually high utility bill or a job loss are other possible reasons why consumers often incur payday loan debt. Regardless of the reason, the borrower generally intends to pay back the loan on the agreed date, but consumers who struggle to make ends meet often find out that any unexpected obstacle can throw off their good intentions. The result is additional payday loan debt.
Consumers Who Live Above Their Means and Payday Loan Debt
Living above one’s means generally results in financial disaster. A person who relies on overtime to pay the rent or mortgage will have a hard time keeping up with bills if his hours are reduced, or if he has to take a lower paying job. Likewise, consumers who buy unnecessary things on credit often live above their means. The reason is that if they could afford those things, they wouldn’t have to resort to credit. When faced with an unexpected job loss, consumers living beyond their means have the toughest time coping with the situation. Often, the only solution is to resort to payday loan debt, which generally aggravates an already bad situation.
Lack of a Family or Personal Budget and Payday Loan Debt
Money has a way of disappearing. A few dollars here and there can add up. Families and individuals who don’t live their lives by a budget have a hard time knowing where all their money went. When the last of the month comes around, they might find that they don’t have enough funds in their checking account to pay the rent or make the car payment. Thus, they resort to payday loan debt. A budget is important regardless of a person’s tax bracket. Besides keeping track of every cent, a budget can help a person set priorities. Having a family or personal budget also helps to avoid late and overdraft fees. In some instances, a budget is all that a person needs to avoid payday loan debt.
Overall, each person’s circumstances are different, and whether or not you choose to incur payday loan debt is a personal decision. If after considering all your options you feel that payday loan debt is your only choice, it’s important to choose a legitimate payday loan company. Make sure that you have sufficient funds in your checking account to cover the loan amount on the agreed debt to avoid additional fees. Remember that it’s never too late to make a budget. Regardless of how much you earn, a budget can reduce the possibilities of incurring payday loan debt.
Copyright © 2011 Ana Jackson. All Rights Reserved. Reproduction in whole or in part constitutes plagiarism, is illegal and strictly prohibited.
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