You can’t watch the news anymore without hearing about the problems with the housing market.  People are having difficulties paying back their mortgage loans, even people with so called “good credit”.  It’s no wonder, with all the adjustable rate mortgage loans that were the rage just a few years ago.  It was such a good deal at the time – borrowing the money to buy your dream home with a low teaser interest rate.  Now that the promotional rate period has expired for many loans, the interest rates have gone through the roof along with monthly payments.  When you’re in financial distress sometimes you make decisions without fully thinking.  One such option available to people is what is known as a payday loan.  It doesn’t matter if you live in Des Moines or Dallas payday loans are fast becoming part of some people’s financial lifeline.

Payday loans are short term loans, ranging in amount from $100 to $500, designed as a fast fix to an unexpected financial problem.  You borrow the money for a week to ten days for some reason (car repairs, for example) and then pay it back on your “payday”.  What happens is that some people become dependent on these loans to pay everyday expenses.  They just pay off one loan only to find out they are short this week and have to go back and borrow even more money.

The fees associated with payday loans can be steep – sometimes 10 to 15% of the cost of the loan.  That would mean that on a $500 loan you could be paying a fee of $75.  If you look at the interest costs of a traditional bank loan these fees are really high.

Here’s my opinion – stay away from these short term loans if you can.  Try and re-evaluate your budget and see if there is anywhere you can cut costs to save money.  If you have a really high interest rate loan try and refinance it for a fixed rate loan.  If you think you need some help, meet with a consumer credit counselor to help you get through your financial problems.  Only consider payday loans as the very last resort, if at all.