Don’t fall into the payday loans trap.

It’s easy to start getting a payday loan. You need an emergency $300? You can get it almost right away with just $25 of application fees. You are relieved that your problem is solved right away. But what’s scary starts here.

Two weeks pass by, and there is no way you can come up with $300 to repay the loan. You pay another $25 to extend the loan. Fast forward 12 months, you have paid $650 in fees, but your balance is still at $300.

Worse still, the charges start escalating and you start to receive threat letters. A study by the Consumer Financial Protection Bureau (CFPB) shows that over 80% of people taking out payday loans are unable to pay off their loan when the 14 days term is up.

Instead, they get stuck in it.

It’s easy to get a payday loan. The catch is, it’s even easier to get stuck in it.

The Vicious Cycle of Payday Loan

If you are constantly trapped in taking out a payday loan to pay off another, you need to ask yourself some cold, hard questions. “How did I end up with payday loans?”

If your problem is that you don’t have enough money to last through the month, you need to reevaluate your budget and the way you spend money. Are you a big spender? Or are you simply not earning enough?

If you are a big spender, you have to get your priorities straight. Can you cut down on the way you consume? Record every expense for a month and see where you spend your money.

Develop the habit of saving first and use the remaining for consumption. Learn to clear your debt systematically.

If you are the second type of people, where you tried your best to reduce spending but you still don’t have enough, you need to increase your earning capabilities.

Take some part time jobs during the weekends to temporarily boost your income and pay off the loans. Build an extra income during your spare time to help you get out of this mess.

Whatever you do, do not take a payday loan to pay off another payday loan. You will get stuck in a cycle of always resorting to borrowing money and this is where it gets you.

The interest rates, late charges and admin fees can put you through hell trying to pay off the original amount you have borrowed.

How to How to Get Out of Payday Loans Legally

“I’m broke, can I ever get out of payday loans?”

There are a few simple ways that can get you out of the hell hole of payday loan debts. But you must exercise some discipline. Okay? Here we go:

Stop the Payday Loan Vicious Cycle

Many people fall into the trap of not being able to afford a payday loan repayment in the first place, so they feel there’s no way out other than taking another payday loan, then another and another.

There is no end to it. Constantly taking out payday loans may seem like a temporary fix to your problems, but the core of the problem remains. In fact, you will fall deeper into debts when they eventually pile up.

By drawing a line and not taking out another payday loan, you attack the core of the problem and stop slipping deeper into debts.

Get Money to Pay Off the Remaining Loans

There are only 2 ways to get more money – either you reduce spending dramatically, or you increase your earnings.

If possible, always attack your budget first because that is the easiest way to squeeze more money for loan repayment. If you have done your best but it’s just not enough, try selling some items that are non-essential to you.

Drastic moments call for drastic measures. If you are knee-deep in payday loan debts, it’s time to ask for help from your family and friends. Get a loan from them and schedule your repayment.

Make sure you are disciplined and keep your words. Pay them back according to schedule once you get your paycheck and then only you spend the rest.

Consolidate Your Debts

If you have a lot of debts but a relatively healthy credit score, you can consider consolidating your debts into lower interest loans.

Payday loans are some of the most expensive ways to borrow money. If you have a relatively decent credit score, consider the following:

1. Credit score above 600: Visit a credit union. They usually have cheaper ways to borrow money, and if your payday loan is not paid off, you can even refinance with a lower interest rate loan.
2. Credit score above 700: Look for better deals. If you have a credit score of more than 700, you will qualify for low rate credit cards, as well as low rate personal loans.

Talk to a Qualified Credit Counselor

“I just have too much debts. I can barely afford to get by every month, and half my paycheck is used to pay off loans. My total debt is more than half my annual salary.”

If this description sounds like you, you need more than just debt consolidation and a side gig. You need to talk to a non-profit consumer credit counselor.

You need to restructure your debt in order to truly fix the problem, which may mean negotiating with your existing creditors or worst, declaring bankruptcy. A good non-profit counselor will help you come up with a decent repayment plan.

Make sure you avoid the for-profit counselors by going to the legitimate National Foundation for Credit Counseling.

The Bottom Line

When it comes to paying off payday loans, every little bit counts. When you renew your loan, don’t just renew it. Make sure you pay some extra towards clearing off the balance, however little it is.

If you have a $300 loan and you pay $25 towards it every 2 weeks, you will be out of debt in 3 months time.

Of course, your final goal is to live a life without payday loans. Very often people take payday loans because they are desperate and out of options.

You can totally avoid this situation by setting up your own emergency fund. Put aside $1000 in a separate account and never touch it unless there is an emergency. For more information on setting up and managing an emergency fund, read this article.