Payday Loans Become Scary Financial Nightmares on the Money-Merry-Go-Round
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"Payday Loans Become Scary Financial Nightmares on the Money-Merry-Go-Round"

"It is a Fast Way to Dig Yourself Into Serious Debt"

RELEASE: June 2002
CONTACT: Paul S. Richard, ICFE Executive Director

San Diego, CA. "To many people, getting an extra $50-$100 they need on payday is one of the reasons ‘payday loans’ are so popular,” said the nonprofit Institute of Consumer Financial Education (ICFE), a San Diego based consumer group helping consumers of all ages improve their spending, increase their savings and using credit more wisely.

"Payday loans are promoted as solutions for people with short-term money problems. The average loan, about $200, are offered at an estimated 6,000 stores nationwide. Consumers who unwisely use one of these paycheck advances, may find their short term money problems have become scary financial money-go-round nightmares, playing out over many months or a year., It is a fast way to dig yourself into serious debt. Payday loans are NOT an effective solution to either short or long-term money problems, advises the ICFE.

Here is how payday loans work. The borrower writes a postdated check for the amount of the loan plus a fee and, in return, gets the loan amount immediately in cash. The lender agrees to wait until the borrower gets paid to deposit his or her check. The loan may be convenient, for the time being, but VERY expensive. As an example, to borrow $200 for two weeks, could cost $38 or more, which might not sound like very much, however it works out to an annual percentage rate of 500 percent, the ICFE explains.

Moreover, bigger problems begin when a borrower starts the dangerous cycle of living financially from one payday loan to another. Recently it was reported a man in Tennessee started "rolling over” his payday loans and wound up paying $1,614 to satisfy a $400 loan.

Before rushing into a payday or any loan, be sure to check out all options. If you have a credit card, it may be less expensive to charge an unexpected expense. Another option is to ask for additional time from your original lender. Many lenders will work with you if you contact them sooner rather than later. If you are going to be late on a car payment, for instance, contact the motor vehicle finance company. If you are going to be late on your rent, discuss the situation with your landlord, especially before seeking a payday loan.

In any loan agreement, read the fine print. Be clear in your mind about what penalties will be assessed if you can't make good on the loan. A payday loan is a binding agreement and past due accounts are reported to credit bureaus, which may negatively affect future credit. Additional loans come with steep penalties, and if you get behind, you may wind up paying as much or more in interest than the amount you borrowed.

If you are "rolling over” payday loans or having difficulty keeping up with your creditors, visit the ICFE's Web site at www.financial-education-icfe.org and click on "Mending Spending."

To receive the same information by mail, please send a self addressed, 60 cent stamped envelope to:
ICFE "Mending Spending"
PO Box 34070 San Diego
CA 92163-4070.

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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