Pay Day Loans: Tied Up In Another Debt Cycle?

Today's generation has been indoctrinated that any debt is acceptable as long as you can make the monthly payment and; you will always have mortgage payments, car payments and credit card payments. For many, you can add student loan payments to that list as well. But this blog is not about managing money. It concerns the consequences of when you don't manage money. Those unplanned expenses that happen can have a large impact on monthly finances. "Robbing Peter to pay Paul" only works when Peter still has some financial resources left. Living paycheck to paycheck puts anyone into a precarious position and may send them into the world of pay day lenders where they become tied up in another cycle of debt.

While pay day loans can be viewed as a life saver in times of financial troubles, it can easily spin out of control. I recently spoke to a 23 year old single mom who had a pay day loan. I tried to explain to her that it was the most expensive way to borrow money. She responded "But I only have to pay back $50.00 on top of what I borrowed. That's not high." Unfortunately she was taking loans out on each pay week; paying one off then taking out another loan because she could not afford to pay off the current loan. She was paying back $100.00 plus fees each month. That was half of her car payment or gas money for most of the month. While her financial resources were limited, she had difficulty understanding the full impact these loans made and that the cycle she was in made her a prisoner to the lending institution.

Here are some steps you can take if you are unable to repay your loan or want out of the pay day lending cycle:

  1.  Look at your monthly expenses and income: when will you meet each expense and on which paycheck? Budgeting your expenses will help you know what your lifestyle costs you each month.

  2.  Figure out how much money you have left after meeting expenses to determine how much you can apply to your debt.

  3.  Repay the loan before the due date if possible. Once the loan is paid off, start setting money aside in an emergency fund. This will help you meet any financial crisis and break the pay day loan cycle.

  4.  If you can't repay the loan when due, call your lender and explain your situation. Don't wait until the last minute to call. It will cut down on the options you may have. Many lenders have internal programs for extending your loan obligation. If you live in a state like Florida, you can get an extension simply by calling an approved credit counseling agency.

  5.  Have a plan worked out on paper to show your lender as to when you can get the loan repaid. They may be willing to take weekly payments as a repayment option.  

When you are ready to break the cycle of financial bondage, contact Family Life Resources. To help you get started, click on this link to begin the application process for your free budgeting and credit counseling session.