©Merchant Cash 4 Advance - flickr

©Merchant Cash 4 Advance – flickr

Payday loans can cause a lot of financial trouble when not used responsibly. In general, these types of loans are designed to be a short term loan that can be paid back in full on your next pay period. In this type of scenario, they can be very useful and potentially save a lot of money when you avoid late fees or other charges that could result from not paying other bills on time.

The problem with a payday loan is when you take out a loan that can not be quickly repaid. When the loan is not paid back immediately, most contracts allow the lender to charge huge interest rates and additional fees on a weekly or daily basis. If you fall into a situation where the loan can not be paid back, you will quickly find yourself in a load of trouble.

Payday loans can be used for just about anything you want. Many people use these loans to make payments that would be delayed otherwise. In these cases, it is important to weigh the late fees versus the cost of the payday loan.

Many people do not realize this, but if you are late on one of your credit cards, just once, the card companies can immediately jack your rate up to almost 30% on all your cards, not just the one you were late on. This is such a problem that laws are being created to prevent this practice. In this type of scenario, missing a single payment could cost you (literally) thousands of dollars, so paying a small sum to borrow money now would make perfect sense.

Another occasion is when you are going to miss a home payment and cause your property to go into foreclosure. When this occurs, usually on the third missed payment, your lender can make the entire loan due immediately. This is another case, where a small loan fee may be a required evil to avoid a huge disaster. With the new government foreclosure bailout package, you can not miss any mortgage payments if you want to qualify. Keeping your payments on time in order to get a lower payment with a loan modification is a excellent good idea.

The key is using a payday loan when required and finding another answer when it is not. In my opinion, buying groceries to feed your family might be okay, but getting a loan for pleasure spending and a movie, or a case of beer is not. Be smart about your purchases and only spend borrowed money when it is a necessity.

In any scenario where you will be borrowing money, make sure you completely understand the terms of the loan and read all the documentation that goes along with it. Never agree to anything you do not understand and never agree to borrow money when you do not know how you will be able to pay it back

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