How Payday Loans Nearly Ruined My Life

Feb 13

A few years ago, I was having some serious financial difficulties and had to resort to getting a payday loan to fix my car. Unfortunately, for me, I had no it I was starting a vicious cycle that would make managing debt virtually impossible. Almost all payday loan companies have some sort of disclaimer that their products are for temporary financial relief and should not be used as a long-term financial solution. What they do not tell is that if you cannot pay the entire loan back with your next paycheck, you will quickly find yourself in a downward spiraling debt crisis.


Image credit: RambergMediaImages

Getting the First Loan

I went to a local payday loan company and borrowed the money I needed. It was all too easy. All I had to do was bring a bank statement, two paycheck stubs and fill out the application. They did not even run a credit check. I knew $20 interest per $100 principal was outrageous for a two-week loan, but I was desperate. Fixing the car turned out to be more expensive than I thought, so when the first payment came due, I only had enough to pay the interest, not the principle. Thus, the cycle began. Every two weeks I was only paying the outrageous payday loan fees and not anything on the original balance. For my first loan, I paid $120 per month in interest that did nothing but extend the life of the loan.

The Domino Effect

Payday lenders are a competitive bunch. Another place advertised a lower interest rate, so I went to them and borrowed another payday loan. The responsible thing to do, as was my intention, would have been to pay off the original payday loan. However, circumstances went awry and that did not happen. I jumped from payday loan place to place trying to juggle due dates, get a better deal, and worst of all, sometimes I took out payday loans just to pay the interest due on my other payday loans. It was insane! Before I knew it, I was juggling four different payday loans paying enough interest per month to buy a brand new car and yet I had nothing to show for it. I had so much money coming out of my paycheck that I was constantly falling short of paying my bills and that led me to borrow more money. I could not break the cycle.

Creating a Plan


Image credit: Pixabay

After watching me struggle for months and getting dangerously close to having a financial meltdown, a friend of mine finally sat down with me and helped me create a spending plan to get out of debt. First, I had to sacrifice any unnecessary expenses and set a strict budget for myself. Once I accomplished that, I realized that I actually could make more than just interest payments. We prioritized the debts by how high the interest rate was, how much I owed and how quickly I could pay the loan off. We decided to tackle the loans with the lowest balances first. The idea behind our strategy was that more loans I paid off, the more money I would stop wasting on interest. Spending less money on interest freed up money that I could use to pay down the principle on my other balances.

Seeing the Light

The first couple of months were the hardest. Even on my restricted budget, paying off the first loan seemed like it was going to take forever. However, when the day came that I finally paid off the first loan, I felt like I had won the lottery. I did not quit there though, I took the money that I no longer had to give to the first payday loan place and added it to what I was paying the second payday loan place. Additionally, as I paid the principle down, the interest when down as well. After much time and patience, the dominoes finally toppled one by one and I was free from payday loan debt.

In retrospect, I should have never gotten involved with payday loans. I should have tried to find a co-signer and get a legitimate personal loan. The last time I hit a financial snag, someone recommended that I visit to get personal loans and finance information. Even with my bad credit, I still paid far less interest than I did with payday loan companies. I was lucky enough to get out of the payday loan trap once and I will never let myself go down into that dark and scary place again.

About the Author: Tony S. is a graphic designer and blogger with an interest in – and lots of experience with – personal finance and debt recovery.