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Over the past 10-15 years, payday loans and payday lenders have become pariahs of the finance and credit worlds. Stories abound about the deleterious consequences of being caught in a payday loan "trap," and many people will tell you that payday loans just do not pay. However, there are some circumstances when payday loans make sense as long as they are carefully considered and paid back responsibly.

Payday loan decisions are all about necessity and alternatives: do you need the cash, do you need it soon and do you have any superior options available to you? It is a good idea to assume that almost any other legal means of acquiring a loan is going to be relatively cheaper than a payday loan. Check with your bank, look at credit card issuers, and ask a relative or friend, etc.

Payday lenders almost always have effective interest rates that are extremely high. It is not uncommon to find a payday loan and, after annualizing the interest and fees, find out the money is being lent at 300% APR or more. Even though the interest may only accumulate for a short period of time, do some research to find the cheapest rates possible. Many payday loans are available online, so that is a good place to start. Just be careful about entering any personal information through payday loan websites.

Do not take out a payday loan if you cannot afford to pay it back quickly, such as in one month or less. Avoid loans that automatically roll over. If you get caught with the wrong loan, you may end up paying more in fees than you borrowed in the first place. The most obvious time a payday loan makes sense is when you are caught with a bill or financial need in between paychecks. Suppose you have a medical bill you would have been able to afford without a payday loan by the time your next paycheck rolls around, but you do not get paid again for two weeks. Taking out a $100 to $1,000 payday loan and immediately paying it off with your next paycheck may be the answer. As always, look to other options first.

If a payday loan is the only financing option that lets you fix your car so you can go to work or take your children to school, it might be worth considering. Chances are, you will not receive a credit card or a bank loan as quickly as a payday loan. Be sure you can pay off the loan quickly and check for competitive rates.

Unfortunately, most payday loans are not taken out with these guidelines in mind, and that is where you can get into trouble. According to a 2012 Pew survey, only 16% of payday loans were taken out for unexpected emergencies. More than 80% of borrowers said they could have cut back on expenses instead of taking the loan. Avoid these mistakes because the costs of continued payday loan use are almost never worth it.

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