“Payday loans are promoted as solutions for people with short-term money problems. The average loan, about $200, are offered at an estimated 6,000 stores nationwide. Consumers who unwisely use one of these paycheck advances, may find their short term money problems have become scary financial money-go-round nightmares, playing out over many months or a year., It is a fast way to dig yourself into serious debt. Payday loans are NOT an effective solution to either short or long-term money problems, advises the ICFE.

Here is how payday loans work. The borrower writes a postdated check for the amount of the loan plus a fee and, in return, gets the loan amount immediately in cash. The lender agrees to wait until the borrower gets paid to deposit his or her check. The loan may be convenient, for the time being, but VERY expensive. As an example, to borrow $200 for two weeks, could cost $38 or more, which might not sound like very much, however it works out to an annual percentage rate of 500 percent, the ICFE explains.

Moreover, bigger problems begin when a borrower starts the dangerous cycle of living financially from one payday loan to another. Recently it was reported a man in Tennessee started “rolling over” his payday loans and wound up paying $1,614 to satisfy a $400 loan.

Before rushing into a payday or any loan, be sure to check out all options. If you have a credit card, it may be less expensive to charge an unexpected expense. Another option is to ask for additional time from your original lender. Many lenders will work with you if you contact them sooner rather than later. If you are going to be late on a car payment, for instance, contact the motor vehicle finance company. If you are going to be late on your rent, discuss the situation with your landlord, especially before seeking a payday loan.

In any loan agreement, read the fine print. Be clear in your mind about what penalties will be assessed if you can't make good on the loan. A payday loan is a binding agreement and past due accounts are reported to credit bureaus, which may negatively affect future credit. Additional loans come with steep penalties, and if you get behind, you may wind up paying as much or more in interest than the amount you borrowed.

If you are “rolling over” payday loans or having difficulty keeping up with your creditors, visit the ICFE's Web site at www.icfe.info and click on "Mending Spending."

To receive the same information by mail, please send a self addressed, 60 cent stamped envelope to:
ICFE "Mending Spending"
PO Box 34070 San Diego
CA 92163-4070.