The Daily Item, Sunbury, PA

Business

March 31, 2014

The Color of Money: The familiar trap of payday loans

If I said, "Don't rob Peter to pay Paul," you would probably understand that I was warning against making a desperate move to fix a financial problem that often makes a bad situation worse.

Yet millions of people do just that when they get a payday loan.

These are small loans that a borrower promises to repay with the next paycheck or benefit check.

Stop and think about this. 

If you can't pay your expenses with your current paycheck, how is borrowing from the next one going to help? Yes, it may solve a problem today. But if you can't repay the loan, you're likely to create a long tether to a financial product with expensive fees.

Yet, I understand why people get them. It's quick cash. It's easy to get if you have a bank account and income. And if you're in a financial jam, the fees can seem reasonable. A charge of $15 to borrow $100 doesn't seem extreme or exploitive to borrowers trying to avoid having a service turned off or catch up on their rent or mortgage.

 But when fees are annualized, they often amount to triple-digit interest rates or more. I've seen payday loan contracts with four-digit interest rates. Payday lenders are required to tell you the finance charge and the annual interest rate (the cost of the credit) on a yearly basis.

 Defenders argue that these loans provide a service for people who need short-term cash. And they are right. Many people feel they are being rescued. Until things go wrong. And they do, for a lot of folks.

 The Pew Charitable Trusts says the average loan size is $375, but most people can only afford to pay $50 in a two-week period after paying other regular expenses. "Repeat borrowing is the norm, because customers usually cannot afford to pay the loans off on payday and cover their other expenses, so they repeatedly pay fees to renew or reborrow," a 2013 report from Pew said. "Lenders depend on this repeat borrowing, because they would not earn enough revenue to stay in business if the average customer paid off the loan within a few weeks."

Text Only
Business
  • Fancy management systems won’t fix bad managers

    In violation of my long-standing “only watch TV” rule, I read an article recently about how Zappos is adopting a management structure known as holacracy.

    July 30, 2014

  • Your Office Coach: Supervisor-employee boundaries must be honored

    QUESTION: Two weeks ago, my husband “Barry“ unexpectedly came home from work with a large flat-screen television. He explained that one of his employees gave it to him as repayment for a loan. I was shocked, because I had no idea that Barry was lending people money.

    July 29, 2014

  • Silly mistakes that sink job applicants

    Some employers won’t care - or won’t catch them - but mistakes in word usage can put your application in the reject pile.

    July 29, 2014

  • Watercooler: Raised to the roof

    Q: Over 15 years, I have worked my way up the corporate ladder with the same organization. I have been given a raise every year and excellent reviews, as well as several promotions.

    July 25, 2014

  • Career Coach Q&A: job search follow-up; introverts as leaders

    Starting a business:

    Q: I have a stable job that I don't hate, but I have an idea for starting my own business.

    July 25, 2014

  • How to become a leader

    QUESTION: I’ve just been promoted into a leadership role. I’m excited, but also kind of overwhelmed. What do I need to do to be good at my new job?

    July 24, 2014

  • Balancing Act: How much is your time worth? Consider outsourcing some tasks

    Todd Paton has a booming business getting customers noticed on the Web. One tool he uses is generating online press releases to build brand awareness and create links that will send traffic to a customer’s website. But Paton, owner of Paton Internet Marketing, acknowledges that writing the releases is not his strong suit. Rather than spend his time doing it, he hires out the task.

    July 23, 2014

  • The Color of Money: No easy way to get out of debt

    Many people who are deeply in debt are desperate for a quick fix. They ask the question: What can I do to get out of debt?

    July 21, 2014

  • Watercooler: When to speak up if you see problems down the line

    Q: Our organization has hired a new director. I am one of a number of division heads; above us, there's the associate director, and above him is the director. The associate director is feared and disliked for his duplicity and dictatorial nature, though few have come forward because of his vindictiveness.

    July 18, 2014

  • Career Coach: Bringing a purpose-driven spirit to work

    Increasingly, religious beliefs and practices of employees are becoming more evident in the workplace. Religious diversity and concepts of spirituality are more prevalent in organizational settings.

    July 18, 2014

Business Video
Stocks