People use payday loans for a variety of reasons.
Turns out, it’s all of the wrong ones.
A new study by the Pew Charitable Trusts found that the majority of first-time payday loan borrowers are reaching out for help on basic, everyday necessities. These would be things like groceries, mortgage payments and credit card bills.
Louisville Chapter 7 bankruptcy lawyers know that when your debt gets to this point, it’s time to reach out for help. When you can’t even float your regular, recurring expenses, the problem is only likely to worsen when you use payday loans. Interest rate payments that top 500-percent of the original loan amount are the norm. And that’s no way to get back on top of your finances.
There has been a lot of talk about how the companies who operate these short-term, high-interest loans are preying on those who can least afford it. This is true. But it’s also true that the regular use of payday loans is more symptomatic of a greater problem – a problem that bankruptcy can help.
Many of our clients have come to us months or years into a debt cycle, believing that bankruptcy is supposed to be their last resort. However, this thinking is dangerous because when you get roped into the regular use of payday loans or credit cards just to cover your groceries, you’re already in a deeply precarious financial position. Using these methods to help you keep up is only going to lead to more debt.
Credit cards and payday loans are structured to keep you trapped in a cycle of debt – and continuing to borrow. Breaking free can permit a fresh start, a stable financial future and a secure retirement.
The problem was so bad in Kentucky that last year, state officials tried to pass a measure that would cap the amount of interest these companies could get at 36 percent. This is already the case for members of the military after members of the U.S. Congress created a special exemption on their behalf. There are 17 states and the District of Columbia that have such laws.
But Kentucky never became one of them, because the bill failed in its final session, with 10 voting in favor of it and 13 voting nay.
The AARP has previously noted that nearly 15 percent of all payday loans are doled out to senior citizens. One of those testified before the state bill failed last year that he had to shell out more than $1,400 on a $400 loan.
The Pew study indicated that more than 12 million people use payday loans in this country every year, and these companies generate about $7.4 billion in revenue.
The majority of loan seekers earn less than $40,000 annually and don’t own a home.
Pay day loans are marketed as a short-term solution for emergency situations. This might be fine for some people, but if there are longer-term financial issues, this isn’t the way to address it.
A Chapter 7 bankruptcy can help free you from the cycle, and give you a chance at a new financial beginning.
Contact the Schwartz Bankruptcy Law Center at 866-270-4495 for a free and confidential consultation to discuss your legal rights and potential solutions.
Payday Lending in America: Who Borrows, Where They Borrow, and Why, Pew Charitable Trusts
Why to Steer Clear of Payday Loans, By Jennifer Waters, The Wall Street Journal