For all of my bluster here at Wealth Kept, I tend to be a pretty honest guy. No really – you see years ago, I was struggling to earn a living and drowning in debts. I was a pretty godawful mess and decided I had to do something about. I started interviewing for sales jobs even though I had zero experience doing it. One of the jobs I interviewed for was selling payday loans on the phone. More about that in a bit.

Now as someone who was struggling to make ends meet, I figured a payday loan sounded like a pretty dam* good deal. I mean let’s face it – you’re short of a few bucks, they’ll say here ya go – just pay us back with an extra 20 added on when you get your paycheck and you’re good to go. Hey, what’s the big deal? Twenty bucks and I can avoid a bounce fee of $25 on my checking account? No brainer I say.

Yeah, that was the stupid in me talking. Sure, if you just look at it as an extra twenty bucks to get you out a jam then it seems like a totally sweet deal. The thing is, payday loans are like crack or alcohol or even OxyContin, which our president now agrees is a terrible scourge. They’re highly addictive and really hard to get off of.

The Interest

Let’s break this down in real numbers, okay? Say I borrowed $200 from a payday loan place and agree that I’ll pay them $220 once my paycheck comes two weeks from now. But once my paycheck comes in, I say, hey wait a second – I’ve got to pay the rent. My girlfriend wants to go to the movies because it’s her birthday.

“Oh hell, no worries brother” they tell me at the payday loan place. “Look, we get it that you’re still in a bind. Look, just pay us twenty bucks now and we’ll forget about your $220 repayment until the next paycheck. Fair?” Sure, I’d think – hey, they’re doing me a solid. I get to spend just twenty bucks and it’s like free money.

Yeah – free money for them. Every time I roll over that $200 payday loan, I end up paying them another twenty bucks. That’s the thing that gets you – it seems like it’s no big deal. Hey, what’s twenty bucks right now when I don’t need to come up with $200 meanwhile? Well that twenty bucks is actually a hell of a lot.

Say I wait five months to pay back that payday loan because let’s face it – something is always coming up and hell, I can just give ‘em twenty bucks to make them go away until next payday. It’s future Eric’s problem, right? Well after five months of giving ‘em that twenty bucks every two weeks, I’m out the whole $200 I borrowed and then on top of that, I still owe them the original $200.

The Temptation

As they used to say in those cheesy infomercials on TV back in the 80s, but wait – there’s more. Yes, much, much more. More temptation to spend more money. After all, payday loans are easy money, am I right? You drop by to pay back the $20 this month and you mention that the TV is on the fritz and you really want to see the start of Monday Night Football.

“Brother, I’ve got your back” the smarmy guy at the payday loan window says to you. “Look, I’ll loan you another $400 until next payday – you just pay it back with an extra $40 and it’s yours. Don’t got the money next payday? Hey, I get it – money is tight. Just give me the extra forty bucks and you’re square ‘till the next payday, kay?”

So what the hell just happened? Now I’ve got my new TV set and I can sit and drink beer with the boys (okay, I admit it – I’m a wine snob and wouldn’t be drinking beer with the boys but you get the idea) and forget about the bill until next payday.

Now here comes the next payday and I now owe them $660. Wow, I can’t pay that much right now. Oh and by the way, my car broke down and it needs a new carburetor. So I go back to my good buddy at the payday loan place, give him $60 bucks and borrow another $400 for the car.

By the time the cycle is complete, I’m borrowing another $100 to pay the $100 I need to pay to just keep the thing going and I still owe them more than a grand right now. The thing is, it doesn’t feel like I do because all I’m paying every month is a small amount of money and I just keep rolling over the payday loans until I get cut off and then the proverbial shit hits the proverbial fan and I’m screwed.

Your Credit Score

Check out your own credit score sometime. No seriously – go and download your credit report at annualcreditreport.com. Heck, if you like, you can even get monitoring from Capital One for free. Mine is decent – around 731 last I checked. That’s because I keep my credit cards current and pay them off quickly.

When you build up all those debts with the payday loan place and don’t have the money to pay them back, they report it to the same places that Capital One reports to. That means that it screws up your credit score because lenders see that you have these massive loans and you don’t pay ‘em back – you just keep racking up more and more debts.

Alternatives

Hey, I get it – times are tough and money is tight and sometimes it feels like you just don’t have any choice but to take that payday loan. The thing is, there are pretty much always alternatives. For example:

  • Banks – Yeah, your good old ordinary bank is often happy to loan you the money at extortionist rates. And even though their interest rates might be high, at least they aren’t loan shark high the prices at payday loan places.
  • Your job – Ask your boss. Sometimes, if you’re having a tough time, they can help you out with a small advance on your next check.
  • The Bank of Mom and Dad – If all else fails, friends and family can sometimes help out a bit. Just make sure you really will pay them back because it’ll suck to be around them at Christmas if you still owe them money.

About that Job of Mine

Oh and in case you were wondering, I didn’t even bother calling those people back. I may sound like a jerk sometimes but I’m not an a**hole who would extort money through payday loans from desperate people.

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