Less than a week after Google said it was banning ads for payday loans, one man's story is making national headlines. He's an example of how a bit of financial bad luck can turn into a mountain of debt.
Back in 2003, Elliott Clark's wife broke her ankle. She couldn't work, so to keep up with the bills, Elliott took out a $500 payday loan. Then he took out four more totaling $2,500.
"I had nowhere else to go," Clark recently told the Kansas City Star. "I had a family, a daughter in college, bills to pay … I'm an honest man.
"Those places shouldn't be allowed to do that," Clark added. "It's just glorified loansharking."
After his wife Aquila's injury, the medical bills rose to $22,000, the Star reported, and Clark couldn't get a bank loan with a 610 credit score. Paying back those payday loans quickly became a juggling act. Over the next five years, it would end up costing him more than $50,000 in interest, the Star reported. And the couple lost their home during that period, too.
With payments due every two weeks, he would repay one $500 note along with $95 in interest, the Star reported. At the same time, he often would then take out another $500 loan and go to the next place and do the same until all five were paid.
He would be out the $475 in interest. And he'd also face the new loans coming due. That pattern went on for five years until he received disability payments from Veterans Affairs and Social Security, the Star reported. Those amounts allowed him to finally repay the whole debt.
"And I sure haven't been back to those places," he said.
What to Consider Before Getting a Payday Loan
Before you apply for a payday loan, step back and consider your options. Is this really an emergency? Is it possible to wait to repair your car or pay your bills until your next paycheck?
Here are some other ways to borrow money that are often lower-interest options:
- Negotiate a payment plan with the creditor.
- Receive an advance from your employer.
- Use your bank's overdraft protections.
- Obtain a line of credit from an FDIC-approved lender.
- Borrow money from your savings account.
- Ask a relative to lend you the money.
- Apply for a traditional small loan.
- Ask your creditor for more time to pay a bill.
If you have evaluated all of your options and decide an emergency payday loan is right for you, be sure to understand all the costs and terms before you apply.
- Shop around for a trusted payday lender that offers lower rates and fees.
- Borrow only as much as you know you can pay back with your next paycheck.
- When you get paid, your first priority should be to pay back the loan immediately.
If your bad credit is keeping you from getting a credit card or qualified loan, you can start repairing your credit. Getting negative, inaccurate information off of your credit reports is one of the fastest ways to see an improvement in your scores. You can view your credit scores for free each month on Credit.com.
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