Do Debt Consolidation Payday Loans Make "Sense/Cents"?

Debt consolidation payday loans do not make sense for you on any level. And even though it may appear that you are taking care of an immediate problem, you are likely just creating a bigger debt problem for yourself that will have to be dealt with down the road.

Payday loan laws vary from state to state, including the amount that can be borrowed, the duration etc. Here is a look at an example of what might happen if you were to obtain a payday loan in California to consolidate your debts. Although the interest rates and fees may vary from state to state, and company to company, the overall conclusion will remain the same. Let's run some numbers.

Let's say you applied for and received a payday loan for $200. The maximum fee that can be charged in California is $17.65 per $100 of loan (and most pay day loan companies charge the maximum). Payday loans don't have an interest rate attached to them which can confuse some people into thinking they are interest free. Well, nothing could be further than the truth. You see, the fee that is charged to you is just interest by another name, although for legal reasons the companies don't refer to it as such.

Typically, these type of loans need to be paid back within 14 or 30 days (usually by your next payday). Here are the "interest rates" using those time frames...

Debt Consolidation Payday Loans Interest Calculations

Advance Amount: $200

Finance Charge/Fee: $35.30

Total To Be Paid Back: $235.30

Interest Rate (APR) After 14 Days: 460.16%

Interest Rate (APR) After 30 days: 214.74%

Note: The interest rates for these debt loans are expressed as an "Annual Percentage Rate" or APR. In other words, if you did keep such a loan for a full year, and had to pay a new fee every 14 days for example, by the end of the year you would have paid back over 2 times the amount of the loan in interest alone.

Payday loans used to avoid NSF fees, bank overdraft fees etc. may make sense, but clearly debt consolidation payday loans do not. The time frame is too short and the interest rates are just too high.

Instead of a payday loan, a more practical option to help you get out of debt would be to consider a debt consolidation program or perhaps a debt settlement program.