Payday loans are one of the worst financial products that is out there. These loans can get someone in a payday loan cycle of headache and pain. One of which most people struggle to get out of for years. So let me give you some ways that you can get out of the payday loan cycle so that you can start to win with your money.
How do Payday Loans Work?
Although it might be self explanatory, it is worth defining. A payday loan is a loan given to someone that is due the following payday. These are not to be confused with title loans which hold the title of your car, motorcycle, trailer, camper, etc. as collateral for the loan.
Typically this is how it is supposed to work:
Joe needs some extra cash between now and his next payday. He works as an automotive mechanic and makes $300 every two weeks. A few days after he gets paid he runs out of money and needs some more. He goes to the local payday lender and gets a loan for $300 to be repaid on his next payday along with an extra $50.
Doesn’t sound completely horrible, right? Just wait.
Payday loans come with INSANELY high interest rates, high fees, and are (by definition) predatory.
They are loans marketed toward low income people as a quick way to get some cash by only paying a small fee to get out of their financial jam.
But there is a problem. Payday loans do the exact opposite. Only about 14% of people who take out one of these loans can pay it back.
In fact, here are some stats to hopefully make you want to avoid these places at all costs:
- 12 million Americans use them each year
- The average loan is $375 for two weeks with $520 in fees (you read that right)
- 80% of these loans are taken out within two weeks of paying off a previous one
- 69% of these loans are used for regular living expenses
So now that we know what these horrendous products are, let’s get into the nitty-gritty of how you get completely screwed when you take out a payday loan.
Option 1: Transfer the Payday Loan to Another Loan Product
Yes. Yes. I know that this is not technically paying off the loan, but paying off the payday loan with another loan with lower interest can be a big step in the right direction.
After all, the average payday loan interest is about 400%. You read that right.
400%.
Even the worst credit cards out there will charge you around 30%.
And of course, 30% is still really bad. But it is far less bad than 400%.
If you are going to pay it off with another debt product though, try to do it on a 0% interest credit card if possible. That way you will pay no interest as long as you pay it off in the allotted time frame that the credit card company gives you.
If you decide to get out of the payday loan cycle with paying it off with a lower interest loan, here are some examples.
- A 0% interest credit card.
- Financing it into your mortgage, HELOC, etc.
- Borrowing it from a friend.
- A personal loan.
None of these choices are perfect because you still owe the money to someone. But at least you don’t have to deal with the predatory loan practices that payday lenders have.
Option 2: Get a Side Hustle
One of the best things (in my opinion) about our economy is the ease in which someone can get a side hustle to make some extra money.
Do I wish we lived in an economy where we didn’t have to have side hustles in the first place? Oh yeah. But alas, we don’t.
There are a lot of really profitable side hustles out there that someone can get started on in as little time as a few minutes.
I have done several of them myself over the years.
Here are just a few ways that you can make $100/day (and sometimes WAY more) with some side hustles.
- Driving for Uber/Lyft
- Delivering with DoorDash
- Donating Plasma
- Flipping couches and other furniture
- Amazon Flex
- Turo
- Reselling Amazon overstock pallets
There are literally hundreds of different side hustles out there to help you make extra money and get out of the payday loan cycle.
I know that it might not seem glamorous or you may not want to go to work in the evening or on the weekends, but sometimes desperate times call for desperate measures. You don’t have to do it forever, just for a little while.
Option 3: Sell Stuff Around Your House
Again, this might not seem glamorous, but if you are in a payday loan cycle, then you are in a red-level emergency.
You HAVE to get out of the cycle as soon as you can.
Facebook marketplace is a GREAT place to sell items in your house that you have laying around that you no longer use or get value from. Try it out and you might be surprised at how much money they will bring.
What NOT to do to Get Out of the Payday Loan Cycle
If you are trying to get out of the payday loan cycle, under no circumstances should you roll your existing payday loan into another one.
I know that it might seem easy and you can just kick the can down the road, but that is how people get into this mess in the first place.
DO NOT GET ANOTHER PAYDAY LOAN!
Final Thoughts
The payday loan cycle is a vicious one. One that is not unlike loan sharking and predatory lending.
Do whatever you have to to get out of this cycle and never set foot into a payday lender’s office again.
But if you find yourself there right now, don’t beat yourself up. I have been there myself.
Just pick yourself up, dust yourself off, and do what you can to right the ship.
I will help you.
I am here for you!
You can do this!
Until next time!
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