5 Tips for Breaking the Payday Loan Cycle

This story originally appeared on The Penny Hoarder.

A payday loan can offer a quick reprieve from unexpected expenses or a spell of tough luck.

But if you don’t have enough money to pay back the loan on your next payday, you may need to take out another loan — or roll your balance into a new loan with interest rates that can be well over 300%.

According to the Consumer Financial Protection Bureau, 1 in 5 new borrowers end up taking out at least 10 payday loans.

This payday loan cycle can turn a short-term loan of a few hundred dollars into a growing mountain of debt totaling thousands of dollars. And when you’re that far behind, it’s hard to ever get ahead.

If this sounds familiar, read on for practical tips for getting payday loan relief.

1. Cut Your Costs

Reducing your expenses can be one of the toughest ways to get out of the payday loan cycle if you’re already living on a tight budget and struggle to find ways to save. If you can’t cut costs, you may need to ask for help to defray some of your costs temporarily.

Asking for help takes strength, but it might make it easier to find extra money in your budget, even if just for a month or two. You may be able to access free meals for your school-age children or visit a local food pantry to get by on a lower grocery budget. College students may be able to request help from an emergency financial assistance fund.

Your church or local community groups may be able to get you temporary help. You can also call 211, the United Way’s health and human services referral line, which can direct you to services in your area, or visit 211.org to locate resources.

2. Earn More Income

Kisha Howard of Orlando, Florida, turned to payday loans when she felt like she was out of options to make ends meet. “At the end of the day, if you didn’t have the money in the first place, you still won’t have it,” she warns.

To overcome her financial gap, she worked as much overtime as she could to boost her income. “Each pay period, I decreased the amount of the loan needed until I no longer needed the additional funds and was able to cover the bills with my income,” she says.

If you have any spare time and energy, it might be worth it to pick up a side gig. Think about selling your services as a pet sitter, weed puller or errand runner — these side hustles don’t require much in the way of startup costs.

3. Use a Windfall for Payday Loan Relief

Lisa Servon, a professor at the University of Pennsylvania, has studied the payday loan landscape for years, talking to hundreds of borrowers about their experiences.

She said getting out of the payday loan cycle often requires some sort of windfall, recalling one woman she interviewed who used her tax refund to pay off her loan. “She really targeted her tax refund from the earned income tax credit, paid off the loans, and then really cut back on spending and watched her expenses,” Servon says.

Getting a huge tax refund isn’t ideal, but if you expect to get a little bit back from Uncle Sam, it can help get you out of that payday loan hole.

4. Ask for Payment Arrangements

Looking back at her payday loan experience, Kisha Howard regards it as “a very expensive shortcut.” She says it’s “better to budget accordingly and request arrangements for bills when necessary. Companies work with you when you communicate.”

You may be able to negotiate lower bills on essentials like utilities or set up an interest-free payment plan to make larger bills more manageable.

5. Talk About It

“Advocacy and organizing is the way out,” says Maurice BP-Weeks, co-director of Action Center on Race & the Economy.

He compares the payday lending landscape to the housing crisis of the Great Recession. “If you’ve gotten into the spiral, it’s really not your fault,” he says. “Contact the CFPB or your local representative and explain your situation. This is not fair. Companies shouldn’t be allowed to peddle these products.”

Similarly, it can help to be open about your situation with friends and family. You may be able to provide valuable advice before someone you know turns to payday loans in a time of need.

A dozen states have banned high-interest, short-term loans, but it’s still easy to get a payday loan — and get trapped in the debt cycle — in most of the country.