Payday loans are a trap that catches many struggling consumers. Thankfully, many consumers can protect themselves with Chapter 7 bankruptcy and erase these debts.
On February 27, 2013, the New York Times wrote an article on the dangers of payday loans. They reported that:
“People use payday loans to avoid borrowing from family and friends, and to avoid cutting back further on expenses. But they often end up doing those things anyway to pay back the loan, a new report finds.
The average payday loan — a short-term, high-interest-rate loan typically secured by a borrower’s future paycheck — requires a repayment of more than $400 in two weeks, according to a new report from an arm of the Pew Charitable Trusts. But the average borrower can only afford a $50 payment, which means that borrowers end up rolling over the loan and adding to their debt. The Pew report found that borrowers typically experience prolonged periods of debt, paying more than $500 in fees over five months.
About 41 percent of borrowers say they need a cash infusion to close out their payday loan debt. Typically, they get the money from the sources they tried to avoid in the first place, like family and friends, selling or pawning personal items, taking out another type of loan, or using a tax refund.
“Payday loans are marketed as an appealing short-term option, but that does not reflect reality. Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term,” Nick Bourke, Pew’s expert on small-dollar loans, said in a prepared statement.”