How to Avoid a Payday Loan: Savings Strategies

Savings Strategies

Nobody wants to take out a payday loan. They’re seen as—at best—a necessary evil. A way for people without credit to borrow money in a hurry. People don’t look forward to them any more than they look forward to going to the dentist…

But the problem with payday loans is that they’re often worse than that. These short-term, high-interest loans trap borrowers into a cycle of never-ending debt. If they were a dentist, they’d be a guy working out of a back alley with one rusty drill and a baseball bat for anesthesia.

That’s why it’s best to avoid payday loans altogether if you can! And that means building up your savings so that, when a financial emergency does arise, you can take care of it on your own.

Easier said than done, right? Well, here are nine great tips from real experts to help you build an emergency fund—and stay away from payday loans altogether.

1. Follow the 50/20/30 rule

Natasha Rachel Smith, head of global communications at TopCashback says that you should, “Review your spending and ensure you’re allocating the right amount to savings and emergency funds. You should have at least six months’ salary saved in an ‘emergency fund’ as, according to the Bureau of Labor Statistics, the average duration of unemployment in the US is 27 weeks.”

“In order to build this up, it’s best to follow the ‘50/20/30′ rule,” says Smith. “You should spend only up to 50% of your after-tax income on essentials, such as housing and food; 20% on financial priorities, such as debt repayments and savings; and 30% on lifestyle choices, such as vacations.”

2. Automate your savings

Robert R. Johnson is the president and CEO of The American College of Financial Services. He says,”Making savings automatic is a key to success.

“A disciplined approach is the key to success, and automating savings is the key to discipline.  Out of sight, out of mind is the operative philosophy here.”

One way to do it? “[Have] a specific amount taken out of each paycheck and deposited directly into a savings or money market account.”

3. Get out of debt

Smith has a couple great tips for tackling debt repayment.

“First,” she says, “ensure you’re paying the lowest interest rates on any credit cards or loans by transferring existing balances to 0% interest credit cards.

“Once you’ve done that,” she continues, “ensure you’re allocating at least 20% of your income to debt repayments.”

According to Smith, “Focusing on the most costly borrowing first is the fastest way to get out of debt as the overall interest charge is reduced more greatly in lesser time, though some people find they are more motivated by paying off the smallest debts first to lessen the total number of creditors they have.”

4. Get rid of cable

“One of the best ways people can save for an emergency fund is to cut the cord,” says Chris Brantner, also known as Mr. Cable Cutter. “With the average cable bill sitting at over $100 per month (not to mention those bills with expired promotions that skyrocket), the average person can easily save $50 or more per month when they get rid of cable.”

(If you visit Brantner’s website,, you can walk step-by-step through exactly how you can cut the cord and keep the programming you want.)

According to Brantner, “Most people already pay for Netflix, which gives you a ton of programming. The average person also subscribes to Amazon Prime, which also has a Netflix-like library full of older HBO series and more. You can get all the local stations you want with an antenna for free.”

“Now if you need more up-to-date programs,” he says, “you can opt for a live streaming service like Sling TV which starts at $20 per month, or go with Hulu, which airs many shows the day after they air, starting at $7.99 per month. Whatever the case, you can still save big.

“You’ll still need internet, but you can likely find a good connection for $40—60 per month,” says Brantner. Luckily, his site “has a tool that will help you find and compare internet provider promotions in your area.”

5. Save your tax refund

“According to a recent study by,” says Smith, “a surprising number of millennials (39%) plan to save or invest their refund, 28% plan to use it to pay for necessities and 24% say they’ll use it to pay down debt.”

“While it is tempting to splurge on a vacation or a big purchase, saving the refund for emergency situations will be more beneficial to you in the long run,” she says.

For more on how you can use your tax refund more wisely, check out our blog post: 5 Smart Ways To Spend Your Tax Refund.

6. Use apps

“There are financial apps that help people save money,” says Johnson. “One popular app is called Acorns. You tie Acorns to your debit card and it rounds the purchase up to the nearest dollar, effectively allowing you to invest your spare change.”

Johnson even lays out how it works:

“If your Starbucks latte costs $4.29, when you use your debit card $5 will be taken out of your account with $4.29 going to Starbucks and $0.71 going into your investment account. This allows you to save money as you make everyday purchases.”

7. Turn your clutter into cash

Smith suggests that you should “Have a clear-out and sell anything you don’t use – or genuinely don’t even want – anymore.”

“Two questions to ask yourself when deciding whether to keep something or not is: ‘have I used this in the last year?’ and ‘is it sentimental?’ If the answer to both questions is ‘no’, then sell it and collect the cash,” she says.

According to Smith, “There are plenty of websites that can help you, eBay being one of the most notorious. However you pay less fees with Bonanza and eBid. If your goods are designer, it’s worth checking out or is great for electronics and will, in many cases, actually pay you $1.50 per gift card you list for sale through TopCashback.”

8. Invest your raise

“Another idea is to ‘invest your raise’ for retirement,” says Johnson. “That is, act as if you didn’t receive a raise and have the after tax amount of the raise deducted directly from your paycheck into a retirement fund. You don’t give anything up other than the opportunity cost of the raise.”

Johnson points out that “You are already accustomed to living on the current amount you make.” When you invest your raise, “You simply continue your lifestyle as if you didn’t receive that raise. Now, mind you, you don’t need to do this every time you get a raise, as the results are cumulative and compound over time.”

9. Maximize your rewards

Smith advises that you should “Make sure you’re being rewarded for your spending.”

“Use credit cards that give you air miles, points or money back on your purchases,” she says.  “Shop through free cashback websites such as to earn a percentage of your spending back as a cashback rebate (think of it as effectively getting a sales tax refund 30 to 90 days after the transaction).”

Smith says that you can also “sign up to free loyalty schemes that give you access to discounts and free shipping.”

Do you have some savings strategies that have worked really well for you? Let us know! You can find us on Twitter at


Chris Brantner is the founder of, where he shares his knowledge on saving money by getting rid of high priced cable bills. He’s also a contributor for Business Insider, TechHive, and other publications.

Robert R. Johnson, Ph.D., CFA ® , CAIA ® , CLF ® , is the President and Chief Executive Officer of The American College of Financial Services. Bob is the author of multiple books and scholarly articles. He is co-author of the books Invest With the Fed, Strategic Value Investing, The Tools and Techniques of Investment Planning, and Investment Banking for Dummies. His articles have appeared in The Journal of Finance, Journal of Financial Economics, Financial Analysts Journal, and Journal of Portfolio Management.

Natasha Rachel Smith, Personal Finance Expert at, is based in Montclair, NJ. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.

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