Payday Loans And Escaping The Cycle

Have you ever found yourself short on money and wondering if payday loans were the answer? You’re not alone. After all, the loan process is quick and the credit requirements are low. In most cases, all you need is proof of income and proof of address. Let’s put it this way: Payday loans are easier to get into then out of.

The Dangerous Cycle of Payday Loans

The loan cycle will usually start off with a small advance, maybe $200. Come next pay you will be asked to pay the $200 back plus interest, plus other administrative fees. Depending on how soon the repayment is made, you could be looking at a payment of $250. What if this payment sets you short by another $200? Worry not, you can re-borrow that $200 and on the following payday, you can pay another $250 to the lender. Do this long enough and you will find that every month you are burning $50 in interest and administrative costs.

Eventually, you will be faced with a situation where you need to borrow more than the $200 to meet your budgeting needs. This is where payday loans can become dangerous. If you need to borrow $250 to pay your current loan obligations and say another $100 to have enough to pay the rent, well that $350 then becomes an even larger amount. For ease of this blog let’s say that the payback amount is now $425.

If you continue along this trend, you will soon find yourself borrowing money from two payday stores. The new store will advance you money so that you can pay the original lender and once that account is clear, you will then need to re-borrow that same $200 that started the cycle in the first place. Now you owe the originating store $250 and the new store close to $500.
As you can see, payday loans can get out of control very quickly.

What is the easiest way to escape the cycle? Avoid payday loans completely. If are already in the cycle, you will have to clamp down on your budget so that the amount you are re-borrowing is less each time. If you find yourself in a cycle where the payday loans are becoming unmanageable, you should contact a Licensed Insolvency Trustee to learn about your options.

For more information on how to break the payday loans cycle, you can contact our office for a free consultation.

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