Caught In The Payday Loan Cycle

Tammy is in debt with payday loans. She has six loans out, and they total about $1,800. She makes $36,000 a year. Dave advises Tammy to pay what she can pay until they're gone.

QUESTION: Tammy in Los Angeles is in debt with payday loans. She has six loans out, and they total about $1,800. She makes $36,000 a year. Dave advises Tammy to pay what she can pay until they’re gone.

ANSWER: This is 800% interest. You realize that. You just kind of got out of control, weren’t thinking, and got ripped off. These people are bottom feeders. You know that. They’re loan sharks. It’s a vicious cycle. It’s very difficult to break.

Your first goal with your money is food. Your second goal is lights and water. Your third goal is your rent. We take care of you first. Then we take care of as many of these as you can take care of. If a couple of them go bad, they go bad. It is not a criminal offense for the check you wrote that was a hot check to the payday lender to not clear. It is not a criminal offense because you’re not out there kiting checks. Their very business is based on the concept of a hot check. For them to criminally prosecute on that is almost impossible. In some states, for them to threaten that is called extortion, by the way. You can’t threaten a criminal response to a civil action in some states. All of that aside, we still have to get you away from these goobers because they’ll eat you alive, as you have figured out.

What I’m going to do is just say pay what you can pay, and let’s knock a few of them out every month. If you can knock out one a month for six months, you’d be done. But that’s going to be beans and rice, rice and beans and no life and working extra jobs and selling stuff on Craigslist and a really tight budget. It’s going to be tighter now because you have to go backward and clean this mess up. Pay one off as fast as you can and try to service a couple of them if you can keep them calm. But if you can’t, then roll a couple of them and let them sit there. I hope you can, but you take care of you first, then work your way through this process.