When someone says "Don't rob Peter to pay Paul," we understand the phrase and know it's about finances. In often cases it makes a bad situation a lot worse. This term applies when people take a payday loan out.
Payday loans are small loans that a borrower promises to repay with the next benefit check or paycheck. Often times this is not the case, the amount does not get paid back and the interest rises and rises.
Interest on payday loans can be as high as 1,950 percent according to an Action 41 News story in Kansas City. In most cases interest rates are between 200% and 600%. As the interest stacks up, we see clients needing to file bankruptcy.
Payday loan services argue that their service helps people with a temporary problem. There are cases where it does help people, but for the people it doesn't help, it makes things far worse. They keep slipping and they are trapped by the burdened of a payday loan.
In today's world most payday loan business is done online. However, the storefront lenders that we see continue to operate in low-income neighborhoods. Agencies and organizations that fight and advocate on behalf of consumers understand the implications of the payday loan trap, especially to the ones that are the most financially vulnerable.
"Payday lenders collect their money using post-dated checks or by getting customers to give them electronic access to their bank account, they don't have to look at the borrower's ability to pay when compared to existing expenses or existing debt," says Tom Feltner, Director of Financial Services for the Consumer Federation of America.
In most cases of what we see, are people that have taken out a payday loan to pay off other unsecured debt. These debts include credit cards, medical bills and in some cases student loans. Other debts that we see that are getting paid for with a payday loan are rent, utilities and food. This is truly robbing Peter to pay Paul.
If the situation arises where the bills are being paid for by a payday loan then bankruptcy is the better option. Financial debt can lead to a lot of stress. Look at all of your options before you consider taking out a payday loan.
If you find yourself wondering what life after bankruptcy would be like without all the debt hanging over your head, call Castle Law Office at 816-842-6200 to speak with an attorney. Or you can email us and schedule your free consultation.