In the beginning, a payday loan seems to be the practical thing to do in order to cover the emergency need for money. The need for money could be a lot of things, such as to pay for tuition, to buy books and clothes, to have pocket money for a planned travel. And so let’s say a payday loan of $1,000 was obtained. The interest is $15 for every $100. For this particular loan, the total interest is $150. This payday loan is a short-term loan and the original plan was to settle the full amount, which is $1,150, within two weeks.

However, this plan was unrealistic. There are numerous bills to pay and there was again another need for emergency money. The payday loan could not be paid off and the debt had to be extended for another two weeks or to the next payday. This extension of debt is usually called the roll-over. The payday lender will charge the interest only, which is $150. Then another payday passed and the loan is still there. This time, the borrower had paid a total of $300 of interest.

It does not take a degree in rocket science to realize that if this payday loan is never paid, the sum of the interests paid every month would eventually become more than the actual amount that was loaned in the first place. This loan must be paid. The question is how?

Some people make the mistake of taking another payday loan to pay off the first one. This new payday loan, however, must be larger so that it can cover the previous debt plus the loan fees. The result is that the borrower now has a larger debt. The payday loan has trapped him into a cycle of debt that is difficult to escape. But there are still a few ways to get out of this debt cycle.

The first and most sensible of all is to stop getting more payday loans. The payday loan is a financial trap. It is illogical to believe that getting out of one financial trap means getting into another. Acquiring another payday loan to pay off the previous one is the worst thing that a borrower can do.

The next step is to establish a better method of payment. The ideal method of payment is to have a fixed amount to be paid monthly. A part of this fixed amount goes to interest while another part goes to the debt. In this manner, the debt is decreased every month. If the payday lender refused to agree to such a payment method, then the borrower can seek the help of the state government.

Another route to take is to discontinue the access of payday lenders into the borrower’s bank account. This can be done by contacting the bank, which can decline any request to withdraw funds from the borrower’s account. The payday lender usually sends such request to withdraw funds electronically and the banks can easily stop payments to the lender.

Some banks would advise the borrower to close the existing checking account and open a new one. This move can protect the borrower from paying fees for Non-Sufficient Funds (NSF). The NSF is filed each time the payday lender attempts to cash in the post-dated check written by the borrower. With too many overdrafts, the bank will be forced to close the account and this will jeopardize the borrower’s financial credibility, prohibiting him from opening another checking account.

And finally, to escape the debt cycle, the borrower must seek the help of credit counselors. These professionals have the experience and know-how to deal with greedy payday lenders.