A payday loan is a small (usually under $500), high interest, short-term loan. It's also one of the worst possible ways to borrow money.

It works like this: a borrower gives a lender a postdated personal check or automatic withdrawal authorization from a bank account. In return, the borrower gets cash, minus the lender's fees.

The lender holds the check or electronic debit authorization for a week or two (usually until the next payday). At that time, the borrower has the option of (1) paying back the loan and fee in exchange for the original check, (2) letting the lender deposit the check, or (3) renewing or 'rolling over' the loan.

Here's why payday loans are so dangerous:

• The loan term is short - usually not enough time to save the money you need to repay the loan. Many of our clients find it impossible to pay back these loans in full.
• If you can't pay back the loan in full at the end of the term, it has to be renewed, extended, or more money has to be borrowed to cover the first loan. Fees are charged for each transaction.
• The interest rates that are charged are very high – 500% or more. They get away with this by calling the interest they charge "fees."
• If the lender deposits the check to repay the loan and there are insufficient funds in your account, you're hit with even more fees for insufficient funds and still owe the loan company the original amount.

So if you're can't make it to your next paycheck, ask your employer for an advance or see if your credit union offers small loans with low rates – many of them do. Or even borrow from a friend or relative. Whatever you do, don't get into the payday loan trap – you may never get out.

If you're already in trouble with a payday loan company, you should think about getting professional help with your budgeting and debt situation.