How to avoid payday loans and other scams after bankruptcy

Filing for personal bankruptcy is not uncommon for residents of New Jersey and elsewhere. However, it is more common to still believe that the future is dire for those who have gone through such an ordeal. What kind of loan can someone hope to obtain after a bankruptcy? The belief that one's financial situation is ruined forever because they had to file for Chapter 7 or Chapter 13 may be discouraging and lead some to make poor decisions in the months and years to come.

It is true that a bankruptcy will stay on someone's credit report for up to 10 years, states Bankrate. This may affect the ability to get a loan and rebuild credit for some time, especially if one makes poor spending decisions while recovering from financial challenges. These could include not paying monthly bills on time, spending above one's means and having too much outstanding credit. Additionally, it can be all too easy to fall into the trap of payday loans.

Why are payday loans a bad idea?

Those suffering from financial challenges are often lured into taking out a payday loan to cover a bill or unexpected expense. Payday lenders will often extend a small loan to anyone with an income, regardless of their credit history. They make it seem like these loans are a quick and easy way to get fast cash and pay it off by the next paycheck. Unfortunately, most borrowers find that they need more money to cover expenses after the loan is repaid - and thus the payday loan cycle has started. Even worse, borrowers soon find out that the interest rate tacked onto a payday loan - sometimes as high as 300 percent annually - is crippling. Many states have laws against this type of lending to protect consumers, but lenders have gone around it by offering quick cash online.

There are, of course, many alternatives to covering bills and paying off debts without falling prey to this type of lender. These can include the following options:

  • Obtaining a secured credit card or small loan from a credit union or reputable lender
  • Getting a temporary part-time job or asking an employer for overtime to make extra money
  • Negotiating with lenders for a manageable repayment plan
  • Asking family members or friends for a small loan
  • Waiting until the money is saved before making a purchase
  • Getting a cash advance on a credit card, which is usually better than a payday loan's interest rate

Wise borrowing after bankruptcy

Personal bankruptcy may give consumers a fresh start, but they may continue to have financial challenges for a while after a bankruptcy discharge. It is important to know that many banks are willing to extend credit with reasonable rates to people after a bankruptcy, which is a much better option than becoming trapped by the exorbitant rates of a payday loan. An experienced bankruptcy attorney in Northern and Central New Jersey may be able to advise you on how to move on after a bankruptcy.