When money is tight, it’s natural to consider all your options for bringing stability to your financial life. While it’s a good idea to compare the pros and cons of every path forward, some are better than others.

A payday loan sounds like a great idea on the surface, but it can actually be one of the biggest financial mistakes you ever make. Here’s why:

1. A payday loan is expensive

On the plus side, most states have laws that govern payday loan fees. However, that’s not good enough when you break down the numbers. Here’s an excerpt from the Consumer Financial Protection Bureau website:

Many state laws set a maximum amount for payday loan fees ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent.

Numbers like those should be enough to scare you away from obtaining a payday loan. It’s simply not worth the price.

2. There’s a good chance of entering a “debt cycle”

A payday loan often leads to a debt cycle that’s difficult to break. Every time you pay back one loan, you secure another. While this works out well for the lender, thanks to fees and interest charges, it puts you in a cycle that quickly bogs down your finances.

If you can’t live without a payday loan, the lender has the upper hand. The best way to get out of a debt cycle is to avoid it in the first place.

3. It doesn’t help you build credit

It’s a common myth that payday loans help you build credit. This isn’t true, as your activity is not reported to credit bureaus.

The best you can hope for is that your lender eventually allows you to borrow money at a lower rate. But as you can imagine, that’s not much of a consolation.

Now do you see why you should avoid payday loans at all costs? Consider other options before you even think about this last resort.

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