You can't stop with just one payday loan
The payday loan is often considered the granddaddy of bad quick-cash ideas. The concept is simple: You borrow a sum from a lender with the promise to repay the total, plus fees and interest, on your next payday. The catch? Those fees and interest are exorbitant. According to the Consumer Federation of America, a typical fee for a payday loan is $15 to $30 per $100 borrowed for a two-week period, amounting to an APR ranging from 390 percent to 780 percent.
If the borrower can't pay back the loan when due, the finance charges continue to apply until the loan is repaid, trapping the borrower in a hard-to-end cycle of debt. "People tell themselves it's going to be a one-time event," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. But most people desperate enough to take out a payday loan still don't have cash to spare when the loan comes due, she says.
If you must: Don't take out a payday loan without a solid plan for prompt repayment. "Borrow from family or friends or take a part-time job," says Cunningham. "Do whatever it takes to keep the loan from rolling over."