For years, Arizona workers have used payday loans to meet unexpected financial challenges that cannot wait until the next paycheck. The loans are readily available from check cashing agencies or finance companies but come at a high cost, particularly when the loan is not paid when it is due. For some borrowers, the costs of a payday loan could have them thinking about personal bankruptcy as the only way to eliminate the debt.
The lender offering payday loans collects the amount borrowed plus a fee on the due date. The due date is usually the next payday. If the borrower is unable to pay the debt from that week’s paycheck, the lender extends the due date and adds another fee onto the debt. For example, a borrower might agree to pay a $15 fee to borrow $100 from a lender. If the $115 is not repaid on the due date, the lender extends the loan, but now the borrower must pay an additional $15. The fees to extend the loan can quickly make repayment difficult for a borrower whose only source of income is a fixed paycheck.
Borrowers should make it a priority to repay high-cost payday loans by the due date. If a borrower’s income does not provide the funds to repay the loan, a solution might be to decrease spending. Cutting expenses to the bare minimum to be able to eliminate the debt from the payday loan might be difficult to do, but it makes sense financially.
Unexpected life changes such as medical expenses, unemployment and a struggling economy could leave a consumer with unpaid bills in addition to a payday loan. Consumers who find themselves in such a situation might benefit from speaking to a bankruptcy attorney. The attorney could possibly suggest options, such as Chapter 13 bankruptcy or Chapter 7 bankruptcy, to eliminate debt.
Source: Fox Business, “Is bankruptcy the way out of payday loan?,” Steve Bucci, March 01, 2013