When Using High Interest Loans is Acceptable

[Note from MD: The following is a guest post from a supporter. In order to keep Studenomics running and to help as many young people as possible, we'll have a variety of posts up on here. I've already hired a staff writer (Briana) to post every Wednesday.]

The lull in the economy has made it incredibly difficult for everyone to stay afloat. Jobs have been lost and many are struggling to create a budget with unchanged salaries while the cost of living continues to rise. However, in light of the staggering job market, many have been able to obtain careers, and are ready to become financially stable yet again.

When faced with tight finances, many individuals turn to credit cards to help get them through the hard times. While this can be okay if you are 100 percent sure that you will have funds in the future, it isn’t okay if you aren’t sure about your future finances. Credit cards aren’t free money. You have to pay them back on a monthly basis. Unfortunately, many who are in financial binds don’t think this far ahead, and when they receive their monthly credit card bill either don’t pay it or pay that bill with another credit card only furthering the cycle.

Not paying your credit card bills or paying previous credit card bills with new credit cards will only result in you destroying your credit. The lower your score drops, the harder it will be to recover once you are financially stable which can often be a hindrance when trying to purchase a home or buy a new car. When you have low credit, you can expect to only be able to obtain loans with high interest rates, if you are able to a loan at all. Paying high interest on a home or car loan can cost you thousands of extra dollars over the life of a loan which will only make obtaining financial stability more difficult.

However, there are options that can help you build your credit. Short term, high interest loans such as auto title loans or payday loans can actually help you increase your credit score if used properly. Much like a credit card geared for rebuilding credit, an auto title loan can be obtained and then gradually paid off to demonstrate that you are now a capable lender.

Although these types of loans can be beneficial, users should be aware that many become addicted to using them, and with APR as high as 425 percent, you want to use them only when it is a must. Borrowers should only secure an auto title or payday loan when they know that they will be able to repay the full amount within a short period of time. Doing so will not only help you rebuild your credit, but it will also save you from paying outrageous interest fees.