Tenants who borrow money to pay rent find themselves in major financial trouble

My years working in financial counseling have shown me one regrettable fact about financial distress. A consumer in crisis will consider borrowing money even at the worst rate imaginable to get them through a tough stretch.

One organization that I work with gets calls everyday from tenants who are looking for a loan in order to be able to pay their rent. The trouble is, that is not a sustainable way of covering your bills.

If your total monthly bills are $1,500 and you are spending $1,600, then you cannot afford to pay everything. Someone in this situation may decide to get a loan so that they have money to catch up on their bills. While it sounds like a plan, now your monthly spend goes up from $1,600 to $1,750. You are still only making $1,500. Now you are going to find yourself in trouble more than twice as fast.

The problem gets worse when payday loans are obtained to pay rent. Some tenants obtain these to prevent an impending eviction. Others use them to come up with a security deposit. Of course, they won’t be able to pay their monthly rent payments if they are paying 391% APR on a payday loan.

A new phenomenon has caught several consumers off guard. Some of the lenders associated with tribal members are successfully pitching longer term loans that still have oppressive interest rates. Western Sky Financial advertises heavily for its so-called problem solver loan. Yet, if you borrow $10,000 using this financing, you could pay back $60,000.

If you think you need a loan in order to pay rent, consider the more practical and infinitely cheaper option of qualifying for rental assistance. These programs can provide interest-free loans and grants that never have to be repaid. Getting a cash gift will always be preferred to taking out some high-interest loan.

Your local community government agencies can provide you with referrals to rental assistance programs. Additionally, we have profiled a few local rental assistance agencies that might be able to help. They generally provide assistance to lower income households, although there are often reduced rent homes and apartments that they manage to help out even moderate income households that need a break from high rents.