Falling Into to The Payday Loan Cycle
Your car broke down and you needed $2000 quickly so you could make it work. Your son got sick and the hospital needed $500 you didn’t have. No other options were available to you, so you headed over to the nearest payday loan store and took a cash advance.
A resolution in sight, you gave them a post-dated check for your next payday, got the cash, and went on with life.
Now you’re coming up on your next payday. The loan is due, but this paycheck needs to be used to pay the rent and buy groceries. If they cash your post-dated check then your rent check will bounce, because there isn’t enough to cover that in addition to the rest of your bills. Your only choice is to renew the loan, adding additional fees and more interest.
After a few renewals, you realize you’re never going to be able to pay the loan off, and the fees and interest just keep accruing and the principle is never reduced. You’re stuck in the payday loan cycle and unsure how to get out.
Breaking the Cycle
There are a few ways to break out of the payday loan cycle. They will involve sacrifices, but keep in mind that the sacrifice is only temporary, and you’ll be able to enjoy the things you gave up even more after you pay off your loan and the amounts that were going to interest and fees are freed up for other uses.
The easiest option for getting out of the payday loan cycle is to come across some extra cash and pay it in full. Unfortunately, this option is the least available. If you get a bonus from work, pay off the loan instead of going out to a nice dinner, or taking a vacation.
Since you will probably never see a bonus, you’ll have to resort to more difficult options. The next easiest is to cut back expenses elsewhere. Most people can cut back somewhere, eating out, morning coffee, buying generic brand groceries, or get a cheaper cable package.
Is there an old mattress in your basement that you haven’t used in five years? Do you have a box of books you no longer read? How about some old clothes that no longer fit? Sell the items through a garage sale, eBay, or to a local store (such as a used bookstore for books, or a consignment shop for clothes). Each item may only bring in a small amount, but added together it can make a difference in paying off the loan. Work Extra. If you are already living on the bare minimum and have nowhere left to cut expenses, and you have nothing available to sell, you will need to pick up some extra work. If your current job offers overtime, take it. If not, find a part-time second job. You can also pick up some extra cash completing online surveys.
To get out of the payday loan cycle some combination of all of the above may be necessary to meet your needs.
So now you’ve gotten yourself out of the payday loan trap, but you’re unsure how to avoid falling back into it in the future. What if an appliance breaks? What if someone else ends up in the emergency room? How do you keep yourself out of the payday loan store?
You have already started a sacrifice to pay off the loan. Continue that sacrifice for just a little bit longer and stick the extra money in a savings account. Pretty soon you’ll find the balance has increased and you now have somewhere to get fast cash without a payday loan. Put this money aside in its own account, and do not touch the account unless it’s a true emergency. Anytime you need to withdraw money out of it, work on building it back up before you need it again.
Credit is a tool. There are ways of using credit to your benefit and many credit options that will not bury you as deeply as payday loans do. Even a credit card with a 30% interest rate will be a better option than a 400% payday loan. Building your credit takes time and patience, so start now. It is much easier to build credit when you don’t need it, rather than waiting until the need arises. You can start building your credit by putting aside some money for a secured credit card. Use the card once in a while and pay it off in full each time it is used, so that you will never have to pay any interest. As you use your credit wisely, you will begin to qualify for unsecured cards. Be patient, it takes time. Once you have one or two unsecured cards, use them occasionally but always pay them off in full every month. Remember, credit does not give you extra cash, it just changes the time when the cash has to be released from your bank account.
It is easy to get buried in the payday loan cycle when you feel that you have no options left. A few sacrifices are available in order to break out of the cycle, but there are some simple steps that you can start now and you will never have a need to visit a payday loan store again.