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Payday Loans: The vicious cycle

Payday loans offer a quick fix solution for times when you just need that extra cash. They can also serve as a road to disaster. You make a loan against your next paycheck. When payday comes around, you have to pay that loan back, with interest. Then you are left with even less money than before. You try to make it to the next paycheck, but money gets tight, gas prices go up, and before you know it, you are back at the payday loan office borrowing more money. Only this next check, you have to pay bills, you need groceries and that loan has to be paid back again, with interest.

It becomes a vicious cycle that soon spirals out of control. I witnessed first hand at just how disastrous this can be. A friend of mine, who made pretty good money, had an emergency. He needed extra cash in order to take care of it and opted to go to the local check cashing store. He repaid the money out of his next check including the interest. Of course, this left him about $300 short. He paid out what he could of his bills but before his next paycheck was due, he needed more money. Again he went for the payday loan.

This went on for about two months before I knew it was happening. I noticed he was irritable and very stressed. I asked what was going on and that's when he broke down and told me about the constant loans he was taking out against his checks. He was going deeper in the hole each time he took out another loan. For every loan he repaid, he had to borrow a little more than the previous loan to try and get ahead. This did not work because he had to pay that much more back. Thus, the vicious cycle.

The last loan he took out was $500, leaving him $550 to be repaid. He told me that once he repays that money, he will be penniless. He just did not see a way to get out of this cycle.

Fortunately, I was able to intervene. He paid the loan back, but I would not allow him to take out another loan against his next check. Instead, he ate at our house and I gave him (not loaned, but freely gave) gas money so he could get to and from work. It was a rough period for him, but he prevailed. I am happy to report he has never gone back to taking loans out against his paycheck.

I know money can get really tight, most of us have been there at one time or another. But before you decide to take out a loan against your paycheck, seriously think it through. Do the math to see if it really will help you or if you are only hurting yourself more in the long run.

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