What Is The Best Way To Break The Payday Loan Cycle?

By Vincent A Rogers

The one thing that makes so many people choose to take out a payday loan is also the same reason why some people manage to find themselves in difficulties – convenience. Even if youre struggling financially and have a pretty poor record with repaying debts – leading to an equally poor credit rating – you may still be able to get your hands on a short-term loan. Whilst this is a blessing for many, for those who dont borrow responsibly, it can lead to a cycle of debt that is difficult to get out of.

There are plenty of people who take out payday loans and then need to get a second loan at some stage during the next month, just to cover a few additional costs. As long as this is significantly less than the first amount borrowed, there shouldnt be an issue as you are effectively shrinking your debt. This will mean that you are able to go back to being self-sufficient again in the not too distant future and break the cycle.

For others though, this proves to be a little more difficult. If you take out a payday loan with proper planning or clear understanding of what it entails, its easy to find yourself in a situation where you constantly need to borrow in order to pay off debts. This is hugely dangerous and is likely to end up with the borrower having more debt than they can manage, which makes defaulting the only option.


This situation really doesnt benefit either party. The borrower will have huge debts and often lose a significant amount in interest over the many months of continually relying on payday loans. They will also have the added problem of having a defaulted payment on their permanent credit history. This will make borrowing of any kind hugely difficult.

For the lender, having a customer that defaults will often lead to the writing off of debts. This means that they lose most, if not all of the money that theyve provided. They may sell this to a debt collection agency if the two parties are unable to come to an agreement on repaying the money. However, they will often do this at a huge loss, with most only recouping 10 pence for every 1 owed.

However to avoid this situation and to break the payday loan cycle, the best advice is to budget. There is no shame in having to seek financial help every now and then, but you cant let it continue unchecked. If you borrow 400 from a payday loan company, the likelihood is that you will need to repay around 500 on the agreed date. This is likely to have an impact on anybodys finances, but with proper financial planning it doesnt need to be an ongoing burden.

Ideally you would be able to save enough to repay the payday loan and get on with your life as normal. However, if things are still a little tight the next month, it may be necessary to borrow more. Now as long as this is less than the original 400, you can begin to work your way out of debt. For instance you may need to borrow a further 200. This would incur an interest charge of around 50, but this is still much lower than the first loan, giving you a good opportunity to escape the debt cycle during the following month.

But to do this, you may need to surrender a few luxuries and maybe even have to do a few hours of extra work. Escaping debt is a gradual process and requires a number of small steps to achieve this ultimate goal. In an ideal world we would never need to take out a loan of any kind, but sometimes things happen that throw our finances into turmoil, thus requiring drastic action. If this is the case, you need to be prepared to work your way out of debt and only ever borrow what you can afford to repay. Otherwise it can easily spiral out of control, leading to months of misery.

About the Author: Vincent Rogers is a freelance writer who writes for a number of finance businesses. For Payday Loans, he recommends

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