How to Escape the Payday Loan Trap

Before real advice can be given in regards to payday loans, I strongly feel that you must have experienced the stress they cause first hand. It’s very easy to dole out practical sounding advice to the public, but when you lack the personal experience, most pieces of advice are not practical at all. The first thing that you should do to avoid this trap is that you choose the personal loan you need so that you can avoid paying for the installment on your payday. In this article, you will learn about different tips and steps that you can perform in order to avoid such things and manage your finances more effectively. 

Take for instance the most common solution for dealing with payday loan troubles: take a hit on an entire paycheck and tough things out until the next one. The payday loan will be gone and you can move past the struggle. Sure, sounds practical, right? In reality, this is the least feasible option for most payday loan borrowers. Taking that hit from one paycheck could mean not being able to feed your family or pay rent and utilities. Trust me, the electric company does not care that you can’t afford to pay your bill because you had to pay off a loan in one fell swoop. They will disconnect your service without a second thought and demand even more money for service to be reinstated.

Another common solution is to contact the payday loan lender and set up a payment plan. In reality, many of these lenders do not even offer a payment plan option. Those that do still want a rather large portion of the total. The usual payment agreement will be two payments, of half the balance, over two pay periods. This would work if your loan was a small amount, but when you are dealing with a large loan it’s still not feasible for most people.

I was in this situation once myself. I assure you neither of these options would have been possible unless I planned to starve my children for the next two weeks or go without water and electricity. Sorry children, no eating or bathing until Mommy gets paid again!

The one solution I came up with that would lessen the hardship while still working toward getting out from under the loan was a borrow down solution. I had been stuck in an endless cycle of paying the loan and the fee every two weeks and then immediately borrowing it back just to make ends meet. Essentially, I was throwing that fee amount away every two weeks.

When I started the borrow down method I went in on payday to pay off my current loan as usual. Only this time, instead of borrowing that same amount back, I reduced what I borrowed by $100. Sure, I lost $100 plus the fee that two weeks, but I also owed less come to my next payday and the fee was cheaper on the amount as well.

The next payday I did the same. I paid the loan amount plus the fee and borrowed back $100 less. Again, I lost the $100 and the fee for that two weeks, but the next time the loan was even smaller and so was the fee.

Doing this, paycheck after paycheck, until I had only borrowed $100, I consistently borrowed $100 less each time. When I went to pay off the final loan of only $100 and the fee, I didn’t borrow anything back. Suddenly, my future paychecks were free from the trap and I was no longer under stress to make sure those loans were getting paid every two weeks.

Sure, things were still tough while I was paying down the loans, but I had to look at the bigger picture. I could either continue the endless cycle of borrowing and always struggle or I could put the plan into action and only struggle for a few more months. Which sounds like the better option for you?