Avoiding Payday Loans

Thank you all very much for the tremendous response from my first credit tips article. I never expected it to get on digg and I hope a lot of you learned a few new things or will at least get rid of some bad credit habits.

Another common problem that I encounter on a daily basis has to do with payday loans. While these may appear to be a quick and easy way to get money for rent, bills, credit cards, etc., the first loan is simply the start of a cycle where you are continually further and further behind on your payments and in need of even more money. Before you know what has happened, you are left in a downward spiral of overwhelming debt.

In most instances, my clients only need a few hundred dollars to pay their bills, so they head over to a cash advance store and put up their future paycheck in return for a no credit check loan. However, things start to get a little sticky when you discover that this place is charging an exorbitant interest rate, sometimes as much as 25% for a two week advance. To put this into perspective, if you borrow a rather modest $200, you could end paying upwards of $50 for this “quick and painless” loan. And once you have paid off your bills and repaid the loan, you may see that you are still a little short on cash due to the unexpected interest payment, so you need to take out another loan. Well, there goes another $50 dollars, meaning you just paid $100 in interest for a one month loan of $400.

Although throwing away $100 a month will not affect the livelihood of most individuals, the people who are taking out these cash advance loans are usually making minimum wage and working hard to make ends meet. It may appear that these operations are taking advantage of the low-income earners plight, but the government has said payday loan stores are not predatory and fulfill a crucial role for some people. I wholeheartedly disagree with this considering that I have seen first hand how it can destroy a family’s life.

To avoid the steel trap of payday loans, there are a few alternatives that I regularly recommend to my clients. Instead of the 300% or so interest you may pay for a cash advance over the course of a year, try taking out an advance on your credit card, which probably charges under 20% yearly interest. While the interest rate is still extremely high, you can save more of your hard-earned money and put it towards better uses. Other options to consider include asking friends and family for a loan in writing (create a contract) or trying a local credit union, which may be able to help you out with a more reasonable interest rate.

If you are not able to come up with the money on your own, a few last resort methods should be attempted before ever stepping foot in a payday loan store. In some instances your employer will give you an advance paycheck, as long as this is a first time or extremely rare request. Also, you can even contact the companies to whom you owe money. In some instances, the company will allow you to pay a little late to ensure that you do not go deep into debt and can continue to make payments to them in the future.

When a payday loan seems like the only solution to your problem, take a step back to consider your situation and determine how you got into it. Do you need the loan because of bad credit, no credit, lots of debt? While each individual’s problems are different, it is always important to plan for the future and set aside money in advance so you can avoid this difficult and stressful situation. For tips and advice on how to track and budget your money, consider visiting a non-profit credit counselor such as myself. With their advice and your hard work, you can avoid payday loans and break out of the cash advance cycle.

Good luck!



  1. […] Avoiding Payday Loans [CreditPro] […]

  2. kingkong said

    It’s a shame that congress saw fit to allow this to continue.

    There is a niche for this sort of lending, but it shouldn’t be at those rates.

    What the US needs is a microcredit system like is being introduced in the 3rd world.

    The only problem is that those loans are being used to start small businesses, while in the US they are used to pay consumer debt.

  3. Payday loans are to be avoided, if at all possible. Although I suppose they can be useful if you are desperate.

  4. grace said

    well avoid payday loans till u r not in crisis, ucan get them any tiome — keep them as the last option

  5. kimberly said

    payday loans have ruined me and my partners lives, stay away from them! if anyone has any info on how to get out of this situation please email me.

  6. rich said

    There are a few tricks to try. Many payday places have discount coupons and even honor those form other places. If you use a 50% off one you can reduce the interest and maybe eventually get away from these places. If you can’t get out of this situation go to your local Catholic charities (or United Way) and they should have a credit counselor who will help you get back on your feet. Good luck!

  7. turtledove said

    i think that payday loans are a leagalized loan sharking, i was a victim also although i am working my way out of the 6 i was in {ohio} it sent me back with my other bills.out of the 6 i was in i have paid back 2 of them and am still working on them , only 1 of them is giving me a hard time so dont ever borrow from express payroll {ohio} or they will send your check through and take you to court. the state of ohio wants to do away with these games of skill well they should do way with payday loans. they say well we dont tell you to come in here or go two multipile ones thats not our fault, but in all reality the tempation is there the quick fix and like most prople you will go , well i had to make a stand i have to get out of them and i will i hope but i will not go back to them. stay out of them they will take you down.sorry about the spelling but i hope this helps.

  8. Paul said

    I’ve never gotten a payday loan before myself. They seem to be in the lower income areas. Basically each borrower should read the fine print before signing anything. Proper budgeting is the main key too.

  9. Payday loan places are slimier than snake pits. You either need a better paying job or a scaleback of your lifestyle, if you find that you frequent this type of place. If you are drowning in debt, you should consider a legitimate (BBB member) debt counseling / debt negotiation agency. They can get your debt negotiated down tremendously with your creditors, if you meet certain qualifications.

  10. Arthur Thomas said

    Hello everyone,

    I believe payday loans exist because most of us spend all of our monthly or biweekly income before next payday. If people learn how to budget-spend less than what they get or earn, then payday loans woundn’t exist in the first place. Payday loan companies are not gonna teach you how to budget your money, because they know loss you as a customer.

  11. Kevin said

    Payday loans offer very high interest rates and whenever I start to consider them I know that is an indicator of a deeper issue. An income issue that needs to be addressed. Payday loans are an expensive and costly band aid.

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  15. James said

    Payday loans are agreat tool since they resolve emergency problems whcih show up in between paychecks !

  16. Greg said

    Payday loans are a quick way to pay bills but having said that I know from personal experience how they can really take your money out of your account each payday through the use of the “fee” which DOES not apply to the principal. One of these charges $180.00 fee every payday. The interest rate on most of the ones I had are 870 percent which is pathetic to say the least. Many of these are scams having you buy other credit cards, clubs, etc.

  17. Annie said

    If you need to take out a payday loan because you can’t get credit elsewhere and you can’t afford your lifestyle you can’t afford to pay them back. It is so easy to get stuck in a cycle of borrowing and reborrowing and rolling over loans. You ending up paying back more than what you owe in interest and still owing the capital. I’d rather be hit with bank charges etc than that!

    See my site http://paydayloantrap.synthasite.com/ to see what a mess I got into. Don’t take out a payday loan it is almost never worth it!

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  25. If you can’t get out of this situation go to your local Catholic charities (or United Way) and they should have a credit counselor who will help you

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  31. Greg said

    Payday loans on the internet are the worst way to borrow money. Some of these places charge up to 1,000 percent interest or more. There are ways to fight back. It is ILLEGAL for any payday loan company to withdraw money from your checking account without permission. It is also illegal for any payday loan company to threaten you with arrest, to harass you by telephone, in person or at work. Write a complaint to the FTC (Federal Trade Commission, Washington, D.C.) on their website http://www.ftc.gov. Write to the Attorney General of the state that the payday loan company has its base at and file a formal complaint. Write to the BBB (Better Business Bureau). Contact your US Congressman or US Senator to sponsor a bill to stop the predatory high interest charges on these loans. You can stop them.

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