Solving a Debt Problem
Types of Borrowing to Avoid
Many businesses are eager to lend you money and make it very easy for you to borrow. But their high interest rates and compounding fees mean you you’ll probably want to avoid them.
- Payday loans
Payday or cash advance loans are short-term loans, generally due on your next payday. These loans have very high interest rates. If you can’t repay the loan plus fees on time, it will be “rolled over” to your next payday, with more fees and interest. Payday loans can become very expensive very quickly.
- Title loans
Title loans are also typically short-term and have very high interest rates. This is a secured debt, which means you often have to turn over the title to your car in exchange for borrowing money. If you don’t repay the loan, the lender can repossess your car.
- Pawn shops
When you take something to a pawn shop, the shop owner gives you a loan—usually just a small fraction of the item’s value. The object you’re pawning is used as collateral. The pawnbroker keeps the item until you repay the loan with interest and fees.
- Other options
Be sure to explore any alternatives available to you before choosing these kinds of debt. Can friends or family lend you money? Does your school have an emergency short-term loan program? You can also get some quick cash by selling items at consignment stores, used book stores, or online.