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The payday loan trap
June 16, 2006 - San Diego, California
If you're still not sure on how you can get trapped in the jaws of a payday lender, here is the following scenario to break down the situation. The Scenario: Joe Sailor has a $250 past-due bill. He writes a post-dated check for $300 to a local payday lender. The "finance charge" is $15 per $100 borrowed or $45. (That's more than 357 percent annual percentage rate interest!) Joe gets $255 in cash and pays the bill. Next payday, he doesn't have $300 to cover the check . . . what will Joe do? The Trap: The lender doesn't want Joe to repay the loan! Instead, Joe pays another $45 to extend the loan to the next payday. That turns into $90 a month income for the lender -- just from Joe. In one year, Joe will spend $1,080 just in interest for his original $255 loan. AND JOE'S CHECK IS STILL OUT THERE! The Solution: Most people with debt problems don't get well in one payday. Those lenders are counting on that to keep their hooks into you as long as possible. They won't help you by accepting partial payments -- it's all or nothing. But good alternatives DO exist: Ask for help! See your Command Financial Specialist or call a Financial Educator at the Fleet & Family Support Center. They can help you figure out a plan to deal with your debt instead of dragging it out with payday loans. Talk to your bank or credit union about a loan. Their interest rates are much better and their payment terms will give you time to get your finances back on track. See the Navy Marine Corps Relief Society for financial emergencies like sudden car repairs or unexpected medical bills. Their counselors will also work with you to help find a way to deal with your debt issues. Consider a Debt Management Program (DMP) with a non-profit agency like Consumer Credit Counseling Services. Many credit unions also offer DMPs, frequently at no charge. But beware of companies offering a quick-fix for your credit problems for a fee -- that's just another sort of scam.
News Source
Navy Compass, Fleet & Family Support Center
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