For many Americans living paycheck to paycheck, payday loans are the only bridge keeping them financially afloat. Unfortunately, very quickly, payday loans can dig you into far deeper debt. Because of the astronomical interest rates associated with these loans, the cost of using them is far greater than the costs of falling a week behind on a bill or even missing a payment. When you live on cash, though, you can feel like it’s payday loans or losing your car, having your lights turned out or worse.

Interest Rates Revealed

Payday loans are known to charge up to 400% interest on a small loan, but for people with no credit history and unexpected bills, they may be the only option. When you’re what’s known as “credit invisible” – meaning you lack any of the history that credit companies use to issue loans or credit cards – reasonable rates like the 15% you might pay on a credit card don’t exist.

Most “credit invisible” people live in low-income communities, which is why payday lenders cluster there. These loans are meant to keep poor people trapped in their current economic circumstances, but there are ways out of the payday loan cycle.

The Risk Of Rollover

Even if you borrow from an ethical payday loan provider, one that’s well reviewed by the Better Business Bureau and known for abiding by the law, it’s easy to find yourself borrowing more in an attempt to pay off old debt. Payday loans even encourage this by allowing you to rollover your old loans into new ones under the old payment schedule, letting the interest add up. Instead of rolling over your loans, though, there’s a better way – loan consolidation.

Loan consolidation is one of the best ways to escape the debt cycle because it allows you to compound your payments into something more manageable. These loans combine all eligible debt into one fixed payment with a lower APR than you’ll ever see at a payday loan outfit. Many payday loan consolidation programs can even help negotiate your debt to reduce how much you owe.

Time For Change

As long as payday loans are available and financial instability is a reality, people are going to turn to payday loans – that’s just the reality of our economic system. At the same time, there’s an ongoing battle occurring at the legislative level to reform the payday loan industry. Lawmakers, activists, and others all seek to push the industry towards more ethical behavior and keep lenders from taking advantage of vulnerable individuals.

In Colorado, for example, a 2010 law restricts borrowing from payday lends both in terms of amount and renewals – rather than rolling over a loan repeatedly, loans can now be renewed only once and must be paid back within 6 months. The law aims to reduce predatory lending and the financial damage that comes from defaulting on high-interest loans.

Of course, payday lenders have been finding ways around Colorado’s law, for example allowing individuals to pay back a loan and take a new one out on the same day, rather than rolling over the loan. In other areas, to fight a decline in payday lending, some businesses have introduced installment loans to appeal to a wider group of borrowers, only to keep individuals in debt longer. It’s a vicious cycle and one that can be hard to break away from.

Payday loans don’t exist to help people achieve their goals or manage an emergency successfully the way most borrowing practices do – they exist to take advantage of people who have no other options. Stop borrowing and start transforming your finances. A small setback is better than landing in a debt cycle with payday loans.

Author's Bio: 

My name is Jessica and I am an independent journalist, freelance blogger, and technology junkie with a passion for music, arts, and the outdoors. One of my greatest passions and joy is assisting communities and business owners. My utmost desire is to help people and business owners to succeed and prosper in their personal and business affairs. I share, comment, write and edit popular news stories.