Debt Cycles on Loans

Debt is not what gets people into trouble. It's the cycle of debt that results from not being able to pay off an initial debt that causes problems. So, when people suggest that a pay day loan is a bad loan, they are looking at the cycle of debt that can result with a loan with high interest rates – if one misses or defaults on payments. But, this isn't just the case with pay day loans. It happens in all lending.

For instance, if you have a credit card and charge a purchase you may start off with a low rate. But, under universal default rules, you can pay an electric bill late and it will cause your credit card rates to increase. This can cause your monthly payment to increase making it harder to payback the loan. It's not the original loan usually that causes a problem; it's the debt cycle from non-payment or late payments that cause problems. Add to that a late charge with can be as high as $37 in some cases, and you can see how easy a loan can quickly spiral out of control.

The trick to managing and debt, whether a credit card or a pay day loan, is to know what you can safely borrow and payback on time. Plan your debt ahead of time. This may seem like a ridiculous notion, but if you knew that you might have an emergency like a car repair coming up due the age of the car, plan ahead to have sources of credit that you can use immediately and an idea of how much to safely borrow based on your income.

Contributing National Payday Staff Writer

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