Breaking the Payday Loan Cycle

Breaking the Payday Loan Cycle

Deferred deposit loans, commonly known as “payday loans” (also called cash advance loans, check advance loans and post-dated check loans), have become an increasingly popular method for consumers to access fast cash.

Follow the steps below for relief

The average payday loan customer makes eleven transactions a year – and maintains an endless sequence of debt. If you find yourself caught in the payday loan cycle.

  • Analyze your financial situation in its entirety:
      1. Set reasonable and achievable financial goals.
      2. Understand your earning potential: Can you work overtime, obtain a second job, or turn a hobby into income?
      3. Review your expenses: Can you reduce or eliminate anything in the short or long term?
      4. Review your debt: List everything, then set priorities. Because the interest rates on payday loans are well above other types of debt, treat it as a financial priority.
      5. Track your spending and regularly review your budget.
  • Commit yourself to not using payday loans in the future.
  • If you are using payday loans because you inadvertently overdraw on your account, consider overdraft protection.
  • Develop a savings plan. Three to six months’ worth of expenses in an accessible savings account is recommended, but anything is better than nothing. A hundred dollars set aside for emergencies can save you a trip to the payday loan company – and a tremendous amount in fees.
  • Understand the root of the problem. Are you spending beyond your means because you’re income is insufficient to live on, or because you’re spending more than you need to on non-necessities?

Laws that protect consumers

Under the Truth in Lending Act, the cost of payday loans – like other types of credit – must be disclosed. Among other information, you must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis). Collectors for payday loans must comply with the Fair Debt Collection Practices Act. Any complaint against a lender may be filed with the Federal Trade Commission: 1 (877) FTC-HELP.