Need Help With Payday Loans? How To Escape The Cycle

How to take out a payday loan

I had a long conversation with a reader whose brother seemed to be caught in an endless cycle of payday loans.

He works about thirty hours a week earning about minimum wage at a convenience store. About two years ago, his car broke down and in order to get it back on the road very quickly, he took out a payday loan.

The problem, of course, is that the loan he took out – say, $200 – charged a significant fee for the service. The average payday loan charges somewhere around $50 in fees, according to this article, which also outlines habitual payday loan practices:

The Consumer Financial Protection Bureau found that the average consumer took out 11 loans during a 12-month period, paying a total of $574 in fees — not including loan principal.

So, let’s take a look at the brother in question. He takes out a $200 loan and, after all of the fees and interest are paid, let’s say he’s on the hook for $240.

Now, his weekly check for his minimum wage job at thirty hours a week adds up to about $200 a week. If he gets paid on Friday and takes out that loan on Tuesday, he’s in a bind. Let’s say he’s agreed to pay half of the total money this week and the other half next week.

So, he’s got his car fixed on Tuesday, but on Friday, he’s only keeping $80 of his paycheck, which has to last him the following week. After that week, on Friday, he gets another paycheck, but he can only keep $80 of that check, which again has to last until the following Friday, at which point he’s free of the loan.

In other words, our friend here has to go through a seventeen day period where he’s only bringing in $160. If it’s perfectly timed, he’s not going to have to be late on any bills.

But let’s say that seventeen day period crosses the first of the month, meaning he’s going to be late on rent? Or, let’s say it crosses the due date for his electricity bill?

In both cases, he’s probably getting hit with a late fee, meaning the burden of his bills is even steeper.

He’s also likely not in a position to explore other forms of credit due to a poor or very short credit report.

His other option? Another payday loan. It’s a vicious cycle that’s very hard to escape from.

So, what can he do?

The first step is to borrow less each time you borrow money. Your goal shouldn’t be to break free immediately – that’s essentially impossible. The goal should be to borrow less each time you return.

So, let’s say, instead of borrowing $200 the next time, he finds a way to borrow only $180. At the same fee rates, that adds up to $36 in fees, bringing his total to only $216 rather than $240. If he lives the same way during the following weeks, the next loan can go down by $56 – the $36 saved on that loan plus the $20 saved as he did before. Suddenly, his next loan is $124 rather than $180.

That’s a perfect situation, of course, but even if he can just drop the amount he borrows by $20 per loan, he’s going to escape the cycle before too long.

What this does is it turns the focus on the here and now. Can you find a way to spend $20 over the next couple of weeks? If you can, then you can borrow $20 less the next time you’re in a tight situation. That puts things in much easier terms to handle than trying to solve the big problem all at once.

The second step is to swallow a little pride. Use community resources that are meant for people in these kinds of tight situations. People who are struggling like this are the reason that food pantries exist. They’re why soup kitchens exist, too.

Some people have negative views on those resources, but they’re out there for a reason. A lot of people have used them as a helping hand when they’re in a very tough financial spot.

If some food from the food pantry and a meal from the soup kitchen can save you the $20 you need to lower your next loan, then it’s a move you need to make.

The final step is to put some cash in the bank for emergencies once the loan is gone. You’ve been surviving on less than your paycheck for a while to be able to pay back the loan, so keep doing it for a while longer. Put part of your pay into a savings account and just leave it there until the next emergency strikes.

When that emergency does happen, you don’t have to head to the payday lender. Instead, you can head to the bank, withdraw the cash you’ve been saving, and use it to deal with the situation.

This is an emergency fund, and it’s a vital tool for anyone to have.

Those three steps are the path out to any cycle of debt, but they work particularly well for those earning very little and finding themselves caught in a payday loan cycle.

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Help! I Have Too Many Payday Loans And I Can't Pay-Help Me Get Out Of Payday Loan Hell

If you are saying to yourself "Help, I have taken out too many payday loans and I can't pay back my payday loans," you are certainly not alone. Ok, so you have taken out a payday loan that you either could not afford in the first place or cannot afford to pay back when it's due and you are taking out other payday loans just to keep current on your first payday loan. You my friend, have been caught in the pay day loan trap. What many payday loan borrowers call "payday loan hell." This happens, and it could have happened for many reasons. So don't beat yourself up, just take steps to fix the problem and try not to get back into this situation again.

As briefly described above, the payday loan cycle is when you have taken out a payday loan and find that you cannot pay it back on time for one reason or another. In order to make your payment deadline and not incur more fees or even collection activities, many people get another payday loan just to cover the payments on the first one or pay it back. Then they end up owing another payday loan. They may keep repeating this cycle, putting themselves further and further into pay day loan debt. This practice is what a lot of law makers try to use to ban pay day lending in their state.

However, these law makers have money so they don't understand why someone would need to take out a payday loan to keep things moving until their next paycheck. Thus they make these laws that do not benefit the people that really need it.

Truth be told, although the interest may be considered high in the long run, paying back $15 to $25 for every hundred dollar you borrower is reasonable especially for those who are really in a jam and need money quickly. There are other options, such as the $10 payday loan which means you pay back $10 for every $100 you borrow. It is a fixed interest payday loan. There are many options when it comes to payday lending. Borrowers just need to become more educated about the choices they have.

One important thing you should remember if borrowing money from a payday lender is to make sure they are a member of CFSA.

What Can I Do To Stop The Cycle or What Can I Do If I Can't Pay My Payday Loan Back?

The first and most important thing you can do if you can't pay back your payday loan is to ask for an Extended Payment Plan. This lengthens the time that you have to pay back your loan so you don't have to feel overwhelmed by the pressures not being able to pay back your loan in time or having to take out another loan to pay for the first.

According to the Community Financial Services Associations Of America (CFSA), a recent study from Clemson University says there is no merit to the myth that borrowers get trapped in a payday loan cycle which they cannot get out of. This myth is what a lot of law makers use to try to ban payday lending in their state. However, payday loan companies who are registered with CFSA are obligated to extend your payday due date upon request.

According to the Community Financial Services Association of America website (CFSAA.com), as of April, 2012, "The Community Financial Services Association of America (CFSA) is the national organization dedicated to advancing financial empowerment for consumers through small dollar, short-term loans. Now in its 12th year, CFSA was established to promote laws and regulations that protect consumers, while preserving their access to credit options, and to support and encourage responsible payday advance industry practices."

So it's fair to say that those who get caught up in the payday loan cycle of pay day loan hell either don't know about the extended payment plan option or have are dealing with a lender who is not a part of CFSA.

According to CFSA, more than 19 million Americans count on payday loans as a trusted form of short-term lending and processes such as the Extended Payment Plan keeps things flowing well between payday loan lenders and borrowers who need more time to pay their loans so they do not have to take out another payday loan to pay the first one back.

How To Take Advantage Of The Extended Payment Plan For Your Payday Loan

  • If you are behind on your payday loan payment you must request an extended payment plan (EPP) by the close of business on the last business day before you loan payment is due.
  • You must sign an amendment to the loan agreement that shows the new payment schedule
  • You may pay the payday loan balance in four equal payments coinciding with periodic pay dates.
  • There is no charge to enter into an EPP but if you default on your new arrangement, the pay day lender has the right to charge you an EPP fee and ask for the balance of you loan to be paid immediately.
  • No collection procedures will take place while you are enrolled in EPP as long as you are paying as agreed by the new arrangement.
  • You are allowed to use EPP at least once in a 12 month period per payday loan lender.
  • Contact CFSAA.com for further detail on the extended payment and the laws that govern them.

How Can I Prevent Myself From Having To Borrow Money In The Future?

No one knows what the future holds so borrowing money may be inevitable. However, you can take steps to help yourself have money when you need it by starting an emergency cash fund. What is an emergency cash fund? It is money that you put away specifically for emergencies. I know you are thinking, I don't have enough money to live on now, how can I save an emergency cash fund? You can put away $50 to $100 or more per month or anything you can afford-it will add up. This way, when you need emergency cash in the future, you can borrower from yourself and pay yourself back. There are ways that you can save for your emergency cash fund without dipping into your current income. Read more about emergency cash funds: PRESS HERE