NEW YORK (MainStreet) — The first time Eli Jenkins applied for a pay day loan was to pay the rent, because he'd overspent the month before on food, clothes and shoes for his children. After that, the 28-year-old chef found himself requesting pay day loans every month to make up the $300 deficit he originally borrowed to cover his budget.
"It became like an addiction," said the single father of two. "I couldn't stop and I didn't want to stop. It seemed to me to be an efficient way to make ends meet."
Today, Jenkins avoids pay day loans in favor of living within his means.
"One of the biggest flaws with traditional payday loans is that the entire amount is meant to be paid back in one installment shortly after the loan is made," said Ken Rees, CEO of Think Finance. "Someone who needs an emergency loan in the first place will likely not be financially secure enough a couple of weeks later to pay back the entire amount they borrowed."
Jenkins is one of the 12 million adults spending an estimated $7.4 billion on payday loans each year, according to Pew Charitable Trusts.
"I got out of the vicious cycle by finding a job that paid me more money at a more upscale restaurant," said Jenkins. "I am also setting aside $50 a month to create an emergency expense fund."
While the average borrower takes out eight pay day loans of $375 a year and spends $520 on interest, the APR can exceed 600%. Even cash advances on credit cards carry a lower APR and fee compared to pay day loans, but the danger to only making the minimum payment in either case is extending repayment indefinitely.
