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What Is a Payday Loan Trap… and How Do You Get Out of It?

My car broke down and I needed $375 to get it fixed. I needed it for work, it’s quite a drive. I don’t have a couple hundred in my pocket, so I went to the corner and took out a loan. I knew it would be expensive, but what are you gonna do, ya know?

–Chaney, age 52

Last year, 12 million people across America took out payday loans. The average debt runs nearly $400, which can rocket up to $500 or more after fees. Some people spend over a third of their paychecks just to pay back a small unsecured loan. These quick cash loans aren’t for everyone, and choosing the wrong option can end in deep trouble.

Are You Caught in a Cycle of Debt?

You’re short on cash, so you borrow. Then you’re short on cash to pay what you owe, so you borrow more. The debt gets higher, so you have to find someone else to give you a better deal. Maybe you max out credit cards and lines of credit. Maybe you rely on paycheck advances and auto title loans.

cycle of payday loan debt
Many borrowers get stuck in a cycle of debt with payday loans.

This is the debt cycle that captures the lives of so many women and men. It doesn’t happen all at once. Contrary to biased news stories, the victims often know what they’re getting into but see no other option. It’s often a last resort.

If you afford the debt when the due date comes around the first or second time, great. Maybe you have found a better job or consolidated your bills so you have more spending money each month. On the other hand, predatory payday lending can destroy someone who is not prepared for the consequences.

How to Escape the Payday Loan Trap

A cycle of debt is more like a chain than a single circle. Each link is separate and relatively light. The more links joined together, the stronger and heavier the chain gets. The same is true for anything from bank mortgages to personal loans. They may be easy to handle on their own, but once you start stringing them together, the weight can be unbearable.

Your main goal is to get rid of that debt. You need enough cash so that you are breaking even instead of falling behind more. Here are some tips:

  1. Make more money. Ask for a raise at your current job or search for a better one. Pick up a part-time job, even if it’s seasonal help at Walmart. If you’re juggling kids, you can do something at home in the evenings. Even mTurk jobs (filling out surveys, writing articles, webcam work) can net you an extra $100 by the end of the month.
  2. Find cheaper alternatives. Yes, we know, if you had access to lower APRs and better deals, you would have taken them already. Keep in mind other options too. You may be able to get a interest-free loan from a family member or close friend. You may qualify for credit counseling assistance to bring down your debts. Some charities also offer one-time debt assistance.
  3. Stop buying stuff you don’t need. Find ways to save an extra $10 to $20 or more each week for your debt. You may have to cancel cable or awhile or cook at home more often. Try it for a few months. It doesn’t have to be a permanent sacrifice; it just has to be long enough to whittle away your loan balance.

Living paycheck to paycheck is scary. If you see you’re stuck in a cycle of payday loan debt, now you know there are ways to get out.


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