Running on empty and how to avoid payday loans

My personal financial situation has been rather tricky for the last three and a half months. However, this is not a big moan about that, far from it. Instead, I’ve realised that a lot of other people might be finding themselves in similar circumstances – and that my experiences could perhaps help others from getting caught up in what I see as The Debt Trap.

How did I get into this situation?

I chose it. As a freelancer, most of my income is irregular, and this was making it hard to save up or make major plans for the future. That’s why I decided to take on a part time-editing job that paid a regular monthly wage as an independent contractor. What was the catch? Ah, well, the catch was that because of the new company’s payment processes, I was going to have to wait three months and three weeks for my first proper pay packet. A long time to be running on half-empty.

At least I knew what I was letting myself in for though, so I had the opportunity to plan ahead. However, I’m fully aware that many people have ‘running on empty’ circumstances forced upon them, such as job losses, non-paying or dishonest clients, illness, relationship breakdowns and so on. It can make you vulnerable to those who prey on the desperate.

The Debt Trap

It’s amazingly easy to fall into the debt trap. Say you’re on a low or irregular income and have no savings. An unexpected expense arrives or you have an unexpected drop in income, and you go over your overdraft limit without realising it – then the bank hits you with interest charges plus a fine. You don’t have enough resources to pay the fine off, which leads to more interest charges and another fine…

Or, you are trying hard to avoid overdraft charges and bank fines, so you take out a payday loan to cover a shortfall. You pay the loan plus the very high interest fee back four days later, but you run out of money again before the next payday and you take out another payday loan. Three or four months down the line and the interest payment alone comes to more than your monthly wage…

[box type=”alert” style=”rounded” border=”full” icon=”none”]With very high interest borrowing and fines for non-payment, you can find yourself deep in a hole that’s very difficult to get out of. Understandably, I was anxious to stay out of this situation if at all possible.[/box]

How I avoided payday loans & other toxic debt

Your mileage may vary if you find yourself in a similar situation, but here’s my personal experience and action plan.

The emergency fund: Yes, I’m the sort of person who has an emergency fund in an instant-access account. I got through the worst of this by dipping into my savings. Meanwhile, I’m aware that an emergency fund to some extent is a luxury that many people don’t have, and saying ‘you should have had one’ after the event is entirely unhelpful, so on with the show.

Monitoring and awareness: I checked my bank balance pretty much every day, so I could see potential problems as they arose and could react accordingly. I knew how much I had available to spend, exactly how much free/arranged overdraft facility I had to work with, how much any interest charges or fines would be if I messed up, which bills came out regularly and how much they were, and I knew to the nearest £1 how much I had in my purse.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: When things are grim it may feel easier not to look, but being aware is the first step in being in control – so look, even if it’s scary.[/box]

Budgeting and planning: I’ve been setting weekly budgets and creating meal plans to keep the spending in check. I’ve also carried out three successful Tenner Week challenges. These actions have been the key to the whole thing, really. I write about these subjects a lot, so won’t go on about it too much here.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: It’s vital that you estimate your likely essential outgoings, make a realistic budget and a meal plan, and stick to it.[/box]

Additional income: I still had freelance money coming in, and was taking on some new freelance work and working evenings and weekends, but I knew I shouldn’t count on it being paid on time.  I also sold things via eBay and MusicMagpie, and did paid surveys that pay out in cash or by PayPal. When I did make purchases I used cashback sites whenever that gave the best deal, and had the cleared cashback paid into my current account. Supermarket loyalty points tend to give the best value if you trade them for special offers, but I’ve used mine recently to pay for groceries to reduce other outlay.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: Make a list of at least three ways you could earn some money. Start on one today, and start two more before the end of the week.[/box]

Making the most of my resources: My situation is that I have some contacts who could help me get some more work, contacts who can get me discounts, a kitchen garden and freezer full of healthy food, some skills and things lying around that I can sell, a knack for finding freebies, and the back of an envelope to write my budgets and shopping lists down on.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: Have a really good think about your own resources: what are they, how can they help you earn, and how can they help you save? Use them, pull out all the stops.[/box]

‘Free borrowing’: I have a small amount of interest free overdraft, and have gone part way into it this month. I’ve also recently put a small amount of borrowing onto my credit card – a card that has a long-interest free period (always read the small print as many don’t have this), which I usually pay off fully every month to completely avoid charges. I’ve kept the amount borrowed as small as I can, and have specific plans for paying it off starting next week, so it’s a good temporary solution for my particular circumstances.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: Low interest or no interest debts can turn into high interest debts if you aren’t vigilant. Avoid taking them out if you don’t have a firm plan for paying them off.[/box]

Being honest, and saying no: While I haven’t publicly been broadcasting my situation to all and sundry, I have been honest with individual people, and turned down various events and invitations. I’ve also left one or two occasions early, or arrived late, to avoid expensive meals and drinks bills. Yes, it’s potentially awkward, but the way I see it is that plenty of people are in the same situation or have it worse, and decent people understand if your finances are not currently going to stretch to this or that. The trick is to make sure they know that you’re avoiding situations for money reasons, rather than avoiding them for personal reasons.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: You can often come up with alternative, cheaper social ideas, or postpone certain meetings, but when the time is right, you just have to be honest and say ‘sorry, I can’t do this right now’.[/box]

Cutting back: I’ve cut out a lot of spending. For example, I’m not one for spray tans and eyelash extensions in the first place, but I have gone without a haircut for sixteen weeks. Okay, so I don’t like that at all and am starting to look like a cheeky little yeti, but it isn’t the end of the world and it certainly beats the alternative. Plus I will definitely be getting paid before I completely transform into Cousin It, hopefully.

[box type=”alert” style=”rounded” border=”full” icon=”none”]PG Tip: Chop out as many non-essential things from your spending as you can take, until the situation improves. Tell yourself it isn’t forever, and don’t put temptation in your own way by reading glossy magazines and going window shopping.[/box]

So there you have it. I’ve made it through over three and a half months of running on half-empty, and that’s how I’ve managed to stay out of The Debt Trap. And if my story helps even one other person to do the same, it’s been worth writing it all down.

Payday’s next week. Of course there will be a risk of getting a bad case of Payday Splurge Syndrome, but that’s a whole separate article.

Other articles you might be interested in

•  Payday loans advice guide from Citizens Advice
•  Alternatives to payday loans by StepChange Debt Charity