How to Avoid the Pitfalls of Payday Loans

I have worked part-time as a financial counselor for the last several years, and recently took my work to the full-time level. In addition, I have more than 14 years as a Non-Commissioned Officer in the military, and have spent countless hours counseling young troops on finance and money issues. A recurring issue with young military troops is the payday loan trap. Payday lenders are located outside the gates of almost every military installation, waiting to trap those military members who are desperate for a little extra cash, or just don't know any better. Thankfully, it is now illegal to extend a payday loan to military members, but there are ways around it, unfortunately. Once you enter into the payday loan cycle, it is hard to get out. These loans charge usurious rates of interest and prey on the weak and vulnerable.

How to Avoid a Payday Loan

If you haven't already entered into the never-ending trap of payday loans, but are considering it, don't do it. There are other options. Seek the help of a friend or family member. Check out services in your town that provide food and assistance with utilities and other bills. Find churches and other institutions that offer help. As a last resort, take a loan from a retirement account. Or call lenders and creditors and ask for alternate payment arrangements or extensions. Be creative and avoid the payday loan. Once you are back on your feet, save at least $1,000 in an emergency fund to help you avoid this situation later.

How to Break Free From a Payday Loan

If you have a payday loan, it may seem nearly impossible to get out from under it. Once you get that first payday loan, it is easy to put repayment off and get another loan when the first expires. Many states prohibit the "rolling-over" of one payday loan into another, so some consumers play "payday loan roulette" and go from payday lender to payday lender each payday when their loan term is up. You can break free of this cycle. Use the tips above to help you re-structure your bills and free up some breathing room. Then get that payday loan paid off. Save up an emergency fund and stay away from payday loan vultures.

If you have thought about a payday loan, or are currently in the never-ending cycle of payday loans, there is hope and help to break free. And as always, if you have questions on this or any financial topic, don't hesitate to seek the advice of a qualified, licensed financial counselor.

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