It’s a few days before the end of the month, but you have already reached the end of your money. Your wallet is empty.

The ATM slips say “insufficient funds”. And the emergency stash under your mattress has long since disappeared.
Fortunately you know this is an unusual month. You had to pay for that unplanned trip to the emergency room when your son fell at school and broke that little bone in his elbow.

All you need is a bit of cash to see you through to payday. You promise yourself that as soon as your salary is in your account, you’ll settle the whole thing and you’ll be back on track.
Not necessarily, says Arthur Hlubi, legal and compliance executive at Bayport Financial Services. “While there are people who do repay the full loan when they get their salaries, unfortunately they are the minority.

A large percentage of payday loan takers, despite their best intentions, don’t actually manage to do so, mainly because they haven’t taken into account the relatively high interest and other fees associated with these loans, which significantly inflate the amount to be repaid in a short time.”
As a result, consumers regularly need to renew, or roll over, the loan with the hope of settling it the following month. But next month comes with its surprises and the interest and the amount owing keeps adding up.
“For many consumers, it is a debt cycle that sucks them in and eventually leaves them with almost no room to manoeuvre,” says Hlubi.
How to escape the payday debt spiral

Hlubi’s advice is that consumers should find help as soon as they realise that they are not making progress towards settling a loan. “The biggest mistake is to keep hoping that next month will be different,” he says. “The sooner you get help, the sooner you can get out of debt. If you let the loan run, the repayments will eventually become completely unmanageable.”
Instead, before taking out a short term loan, consumers should go to someone who can help them get a complete picture of their finances, and with whose help they can draw up a plan to get out of debt first, and then improve the way they manage their finances.
Hlubi says there are a variety of sources of assistance available, from human resources or employee wellness practitioners at a person’s place of work, to trained financial consultants at banks or other financial institutions.

“Sometimes even a money-savvy friend or relative can be a good place to start,” he notes.
How to avoid the payday debt spiral

The best way to ensure you don’t get caught up in a payday debt cycle is to have an emergency fund you can draw on to get you through tough times. “Yes, that means saving, which is very challenging in the current climate,” says Hlubi.
Consumers often believe that they must have money leftover before they can save. Hlubi, however, suggests a different strategy. “Saving should be budgeted for like any other expense. Even if you start with a small amount, the discipline of saving is important.

It is extremely motivating to see a little pile of money that grows and grows. Furthermore, the psychological impact of knowing that you have a safety net in case things go wrong is a hugely positive influence.”
Saving, though, is just one side of the money-management coin. Consumers should also take control of their finances by drawing up a budget and, importantly, keep record of their spending.

“Once you know what you spend your money on, and where you waste some of it, it becomes possible to proactively manage your finances and only take out loans for things that will better your life,” says Hlubi.

Executive: Legal & Compliance, Arthur Hlubi