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Wednesday, November 11, 2009
Carrie Schwab Pomerantz :: Townhall.com Columnist
Payday Loans Out of Control? Get Help Now
by Carrie Schwab Pomerantz
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Dear Carrie: I'm 55 years old and I got out of my 401(k) plan. I have a lot of payday loans and am really struggling. Can you offer me any advice? -- A Reader

Dear Reader: I'm so glad that you wrote in. If you're mired in payday loans, your situation is serious and you need to get on another path quickly. You've taken the first step by reaching out for help and I applaud you for that. As you know from experience, payday loans are probably the most costly source of money. While on the surface it may seem that you're paying a small fee for a small loan, the interest is really astronomical.

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According to a recent Federal Trade Commission Consumer Alert, if you pay $15 to borrow $100 for two weeks, the actual annual percentage rate is 391 percent! Keep rolling over the loan instead of paying it back, and you're charged another $15 every time you roll it over. Pretty soon you owe much more than the original debt and the interest rate just keeps going up. So, your next step is to put on the brakes -- immediately.

LOOK FOR LESS COSTLY SOURCES OF CASH

The first thing you need to do is stop the payday loan cycle. Consider any less costly sources of money that could help you cover your immediate payday debts. Depending on how much you owe, you might:

-- Ask a family member or friend if they would be willing to loan you the money at a more reasonable rate. You could draw up an agreement with a specific interest rate for a set amount of time and formalize your repayment schedule.

-- Look into a loan from a credit union or small loan company. Some companies specifically offer short-term loans at far lower rates as an alternative to payday lenders.

-- Get a cash advance on a credit card. Yes, the interest rates are high, but nowhere near as high as you're most likely paying now. Continued...
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About The Author

Carrie Schwab Pomerantz is a Motley Fool contributor.

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(8 comments so Far)
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Reply # 1
Date: Nov 16, 2009 - 2:03 PM EST
Check with your state regulator
If you've taken out multiple loans or have rolled loans over multiple times, this might be illegal either for you or the lender depending on what state you live in. Generally, if you ask to be put on a an extended payment plan, managers of payday loan businesses will help you set one up. This will stop roll overs and incurring any other fees. Often, many are forgiven in the process as well. However, in some states, late charges or added interest are illegal. You may want to discuss the regulator of these loans in your state to also see if you can reduce what you owe. These loans are heavily regulated on a state by state basis. The budgeting information in this article is crucial.
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Reply # 2
Date: Nov 11, 2009 - 12:17 PM EST
Nancy Pelosi

This advice would be great for Nancy Pelosi and all of her Democratic caucus.
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