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Consequences of Online Payday Loans and Scams

Consequences of Online Payday Loans and Scams

Borrowing money from lenders can be full of dangers. Nowadays many lenders use the Internet to trap victims. Payday loans and short term loans act as covered pits for use as a trap.

Regulators and consumer groups have warned about this trap and have made it known that such loans can trap people in vicious cycles of debt. Are payday loans destroying your life? Are you in much more debt than you can pay back right now?

If you have more than two payday loans then you may be eligible for a special payday loan consolidation program that your lenders don’t want you to know about. This program can get lenders out of your bank account and help you get out of this trap.

Borrowing money from online lenders can cause you twice as many overdrafts on your bank account than who borrow from a storefront lender. According to a recent study by the Pew Charitable Trusts, online loans typically cost an approximately 650% annual percentage rate (ApR).

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Payday loans that are paid back on time range in cost from around 300% APR which is a rate similar to those charged for store-issued payday loans, and more than 700% APR from creditors who are not licensed in all of the states where they lend.

Online lending practices harm borrowers

There are numerous reports of abuse in the online payday loan market for the last few years.

Reports include threats and fraud by lenders, debt collectors, and those posing as lenders and debt collectors. Thirty percent of borrowers report being threatened in connection with an online payday loan, 22% of online borrowers have lost bank accounts because of online payday loans, and 89% of payday loan consumer complaints are about online lenders. This information is from Pew Charitable Trusts.

Why do people seek a payday loan knowing that it’s a trap?

Many people looking for a short-term loan knowing that it’s a trap. Since the financial crisis, banks have tightened their lending policy. For borrowers, they just need a thousand dollars to make ends meet, and they have nowhere else to go.

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They have to borrow money from payday loans companies storefront and online. Check out the most common reasons why people seek payday loans.

Online payday lenders require having access to your bank account to let them directly withdraw from their accounts.

This is how the online scams got started. Some borrowers refuse to give them access to their personal bank account and choosing a secure loan using a postdated check. In this case, they undergo a longer, difficult process and waiting longer to receive the cash.

When someone gives access to their bank to make withdrawal like that, they are likely to be losing control of their bank account. Giving access to lenders is very dangerous. What can happen if you give access to the payday lenders?

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Well, they will suck you dry, hitting you with overdrafts fees and leaving you without enough money to pay your bills or rent.

Sometimes, people take a second or third payday loans to repay the old ones. Well, you are making it worse. It rapidly gets out of control. One such individual is JoAnneh Nagler, a 42-year-old artist and author who also spends her days as a yoga teacher. Eventually, she decided to put approximately $80,000 on various cards in an attempt to finance her endeavors.

Check her story Women Pays off 80,000 in Credit Card Debt .

Guidance issued by the Federal Deposit Insurance Corporation in 2005 says that payday loans should not be made to anyone who has already been in debt from a payday loan for three months or more of the previous year.

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For online payday loans, do your homework before you apply for one. Not all lenders are bad but some of them engage in these scams and make short-term loans a trap.

Featured photo credit: The Bureau of Investigative Journalism via thebureauinvestigates.com

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Adnan Manzoor

Data Analyst & Life Coach

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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