Having to choose which debts to pay off first is not a situation anyone wants to be in, yet millions of Americans face these decisions every day. When it comes to credit card debt and payday loan debt, it can be a close call, especially if you are already receiving collection calls from creditors or collection agencies. Most consumers are aware that both of these debts come with a high priority and both can easily set you up for a damaged credit score if you fail to make timely payments. If you need to consider whether to pay your credit card debt or payday loan first, you need to evaluate the different properties of each type of loan to come to a final conclusion.
Payday Loans vs. Credit Cards
Although both credit cards and payday loans can help you access money, they are two very different types of loans. A payday loan is a quick fix for those who are strapped for cash. As the name implies, they are expected to be paid off by the next pay day. These are high-interest loans that require no credit check to be approved, which is why you can usually be approved for them the same day you apply. The main issue with these loans is that exorbitantly high interest levels face those who cannot pay back the full amount that was borrowed plus the initial fee in two weeks. Such loans often keep people in a continuous cycle of ever-expanding debt.
A credit card is a much safer way of accessing funds. You can borrow money on your own line of credit from the lender in order to make purchases. Each month, you are expected to pay off a full balance of whatever you borrowed during the previous cycle. Having a credit card can strengthen your credit report and help you build credit. However, all too often, consumers get trapped into making minimum payments, which leads to accruing interest on the original amount borrowed.
The Final Conclusion
Due to the viscous nature of high-interest payday loans, it is highly advised to pay these off first. It is never good to have a variety of debts, but for consumers who find themselves in these difficult situations, it’s best to pay off the debt that carries the highest interest rate. Even if your credit card presents a high rate, sometimes as much as 30% interest, that is no match for what you’ll face if you fail to pay off your payday loan. These loans have been known to reach interest levels of as high as over 700%!
In addition, payday loan fees are higher than credit card fees. You could be charged $10-$20 for each $100 borrowed over the course of every two weeks. Unpaid debts from payday loans could also hit collection agencies and affect your credit score.
For help managing collection calls or negotiating debt, contact a consumer law attorney who handles debt issues in South Florida. Attorney Jibrael S. Hindi has worked with consumers like you for years tackling predatory lenders and standing up for consumer rights. Call The Law Offices of Jibrael S. Hindi at 1-844-JIBRAEL or contact us for a free consultation. You won’t pay a dime until Jibrael resolves your case!