Payday Loans: Should They Be Legal?

There are two sides to every coin, and it’s impossible to get a full picture without looking at both sides of a story. These days, those who talk about the companies who provide payday loans seem to fall into one of two camps: one side, with pitchforks and blazing torches wants to run them all out of town, while the other side seems to have a love/hate relationship with them that just doesn’t ever seem to go away.

Several states have passed legislation in recent months either outright banning or severely restricting payday loans. But why? Whose job is it to protect the consumer? The lender? The government? Or the consumer himself? Legal payday loans in Arizona. There may be no good answer, and for certain there’s no perfect answer to the question. On the one hand, even business should have some sense of moral obligation not to take undue advantage of consumers. And many would argue that rates that amount to 400% APR are certainly taking advantage of consumers.

On the other hand, borrowers who find themselves in a hard spot, with no money to pay for a needed bill and credit so bad even mom and dad won’t float them a loan have few other places to turn. And let’s face it, most of us have been in a tight spot once in a while, and needed some money before payday.

So, where does the government fit in? In some cases, state governments have decided that the payday loan industry is so bad, and charges such exorbitant rates that it needs to be shut down entirely. New Mexico is a great example. But is it helping?

These lenders still manage to find ways to lend money out at extreme interest rates. The only real difference is they use things like a car title as collateral instead of a check that lender and borrower both know would bounce over the Empire State Building if it were ever actually cashed.

Other states have gone to great lengths to make sure that borrowers are at least educated about the interest they are paying and given ways to get out of the hole if they find themselves in too deep. In Michigan, for example, borrowers have the right to request three month terms, in which they have three months, rather than until next payday, to pay off their loan in Pennsylvania.

There’s no perfect answer here. If you eliminate the payday lenders, borrowers find other (and sometimes worse) ways to borrow money. Or they do without loan money when they genuinely need it. Maybe the best answer would be if we could have a payday loan company offer 0% interest loans. No takers? Oh well, it was worth a shot.

So you’ve just paid off your payday loan?

Congratulations! We bet the air is feeling lighter, the grass is greener, and your wallet is a little heavier (or at least it will be after your next paycheck). You know that first paycheck in months that didn’t go to pay off your last payday loan, plus interest. Now that you’ve broken free, you’re probably telling yourself, “I’ll never get caught up in that again.”

Good! Now, how are you going to make sure that happens? One wise person put it really well when he said, “people don’t plan to fail, they fail to plan.”

So, if you’re going to stay out of the payday loan cycle, you’re going to need to have a plan. But have no fear, as people who have been in the cycle ourselves, we’re here to help you with that.

This is a really complicated plan, so get ready to do some serious concentrating. Are you ready for us to reveal the secret?

Save. That’s the secret. OK, I know, it isn’t really a secret, and you probably already thought of it yourself. But here’s the part that makes it work: do it. We all know how. Now we just need to make it happen.

And here’s how: you’ve just spent the last several months making interest payments to a cash advance company. Did you miss those payments? No? Why not? Because you had already written a check out, and you knew they were going to get their money one way or the other.

So, what does that have to do with savings? Everything! You need to start paying yourself the same way you paid them. Treat it like it isn’t optional. In the long run, it isn’t, unless you consider another payday loan a viable option. Because you will be hit with unexpected expenses again, and the only way you can be ready for them is if you have your own money set aside.

Whatever other bills you have, whatever else is going on in life, if you were able to afford to pay the interest to a payday loan company, you can afford to pay it to yourself. If you want to give yourself a bit of a break, consider putting only half of the interest you were paying on your cash advances into a savings account. You’d be surprised how fast your emergency fund grows.

Here’s the final step, and probably the most important. After you’ve been saving for a while and that number in the savings account ledger starts to look really big, you’re going to be tempted to go out and buy something with it. Don’t. Every family should have at least $5,000 cash on hand for emergencies. If your savings account isn’t higher than that, leave it alone.

When a Payday Loan Makes Sense

Everyone knows that payday loans cost a lot of money. All too often, people find themselves in the vicious cycles of repeatedly borrowing and paying off high interest rates every pay day. It doesn’t take a genius to figure out that those kinds of habits can break our backs financially in a hurry.

But does that mean that there are never cases where a payday loan makes sense? If you have any other options, it does. But, for many with poor credit and no cash on hand, a payday loan just might be the only option they have in certain circumstances. Here are some examples of when a payday loan might make sense:

  • Car repairs. If your ride breaks down, and you need to get to work, paying the high interest might be better than missing the work.
  • Emergency travel. We’re not suggesting a trip to the casino is emergency travel, and taking a payday loan to fund a vacation is a patently bad idea, regardless of where you’re going or how badly you “need a break.” But some travel needs crop up without notice. If, for example, you need to attend a funeral or similar event, a payday loan might make sense for you.
  • Doctor’s visit. There are times when the difference in cost between a trip to a doctor’s office or clinic and the cost of an emergency room visit may justify taking out a payday loan for those who don’t have insurance.
  • Rent. Payday loans aren’t the best way to pay the rent, on a regular basis, but if an unusual circumstance is going to make you late with the rent, it might be an option you consider. The only time this makes sense, though, is if the late fees on the rent are going to be more than the interest on the loan would be.

No matter what your reasons for taking out a cash advance, make sure that you pay it off completely on pay day. If you are absolutely unable to do so, at the very least borrow less every time you re-loan. This will still leave you paying ungodly amounts of interest, but at least you won’t be caught in a completely endless loop.

How to Pay Off a Payday Loan

Let’s face facts. If you’re taking out a payday loan, it’s because you’re broke and out of other options. Unfortunately, that also means, at least in most cases, that there isn’t an ice cube’s chance in New Mexico that you’re going to be able to repay the loan on pay day and still be able to live for two weeks on what’s left of your pay check. At the very least, that’s the situation most cash advance customers find themselves in.

So, What Do You Do if You Need to Reloan?


Let’s start with what you don’t want to do. You definitely don’t want to reloan for the same amount that you borrowed in the first place. That starts an endless spiral into all kinds of financial problems. Re loan only as much as you absolutely need.

Make a Plan and Stick to It.


Whether you lower your loan by $200 each time or $25, borrow less every time you re loan. That’s the only way you’re ever going to get out of the hole. Even if it takes six months to pay off your cash advance, it’s better to at least make some progress. Make sure you borrow less every time you re loan. If that advice is beginning to sound like a broken record, good. Now do it.

Once You’re Out, Make a Plan to Stay Out


OK, no more excuses on this one. If you could afford to pay a payday loan place the interest on $500 every time you get a paycheck, then you can afford to pay at least that much to yourself. Start a savings account. In no time at all, if you leave the money alone until you hit a genuine emergency, you will have a nest egg built up that will prevent you from every having to take a payday loan again.

An Even Better Plan

Another thing you could do with the money you should be “paying yourself” is split it in half. Put half of it in a savings account, as in the plan above, and use the other half to pay off the old bills and debts that caused you to need to turn to a cash advance store in the first place. If you are unsure about how to go about paying past bills off, there are many credit counseling services available, many of them willing to help at no direct cost to you.

You Can Do It


If you’re in a bad situation because of a payday loan, don’t feel bad. You’re not the first person to find themselves in that situation, and you won’t be the last. It’s not so important where you are right now. What really matters is which direction you’re headed. You can get out from under this, with a little help and discipline.

Payday, Wahoo!

There are only three things we can think of that are called payday. One was a boring board game from the ‘70s. Another is the best candy bar ever created. Really. The best. EVER. And the third is that day of the week above all other days, the day when the boss man recognizes all of the hard work and effort we’ve put in and relinquishes that piece of paper that we work all week long for. Of course, if you’re like a lot of us, every penny represented on that piece of paper is gone before next week gets here. Between payday loans, the rent, utilities, car payments, groceries, gas, and everything else we pay for on a week to week basis, it doesn’t take long for dough to go.

Of course, the hazard of living paycheck to paycheck is that we won’t have any wiggle room if something goes wrong. Most of us handle our bills OK. The problem comes in when we’re juggling our bills, having spent ourselves out to our limit, and something unexpected comes along. Suddenly the car breaks down, or one of the kids needs to go to the doctor, and we don’t have money to cover it.

So what can you do? If you don’t have savings, good credit, or a rich uncle, chances are you’ll have to take out a payday loan. If you didn’t already know, that’s a short term loan, intended to be paid back on your next pay day that can be used for virtually any expense. Just about anyone with a job can get one, and in a genuine emergency, they can be a real life saver.

They do have high interest, though. Since most of us are already living to the limits of our means, it’s really hard to pay the loan back on payday, then get through the next week without going back to borrow again. The payday loan places are usually more than happy to loan you more money, as long as you keep paying them back, with interest, on payday. But, the interest quickly adds up to a lot of money thrown away. If you’re not careful, re loaning can cost you thousands of dollars in interest in a hurry.

So, here’s what you do if you find yourself borrowing and re borrowing every week. Tighten your belt, do without a few things, and borrow less every week until you’re not borrowing anymore. That’s going to leave you short, but so is repeatedly borrowing, and at least that way you’ll get out of the cycle eventually.