A man from Allentown, Pennsylvania, found himself drowning in payday loan debt after losing his job, and he called into “The Ramsey Show” hoping for a way out. The result: a tough-love wake-up call from personal finance experts Dave Ramsey and Jade Warshaw.
Trapped By Payday Loans, Fighting To Get Out
The caller, Alex, explained he owed about $3,500 in payday loans, all carrying interest rates of around 500%. He said he took them out after getting laid off in August, since he didn’t have good enough credit to get a traditional loan.
“All of my money just goes to those payday loans and basic living expenses,” Alex said. He’s been making about $800 a week driving for Lyft and doing side gigs, but it hasn’t been enough to break the cycle.
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Ramsey responded with tough love: “Don’t you ever walk in those places again and borrow money the rest of your freaking life.”
Alex said he starts a new job in three weeks that will pay around $70,000 a year, but he needs to survive until then. The hosts urged him to find additional weekend work immediately, even suggesting jobs like hanging Christmas lights, yard work, or picking up shifts at FedEx or UPS.
“If you’re driving a car 10 hours a day, you’re not making any money,” Ramsey said. “Work Saturday and Sunday.”
Ramsey also advised Alex to prioritize his spending. “The first thing you do is you buy food. The second thing you buy is you buy electricity,” he said. “The third thing you buy is rent. The fourth thing you do is pay a car payment. Only after all of your living expenses are covered do you pay anything on a payday loan.”
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Alex floated the idea of revoking the payday lenders’ access to his bank account until he could pay, and Ramsey agreed: “That’s fine. Just stop it or change your bank account or close your bank account.”
But Ramsey reminded him, even if he cuts off access temporarily, he still has to pay back the debt: “You’re going to have to pay them the $3,500 and you’re gonna have to pay them a bunch of stupid interest at some point.”
The emotional tone ramped up as Ramsey blasted the payday loan industry: “Teach your children, teach your grandchildren, teach everyone’s children to stay away from those scumbergers. They are screwing people.”
He told Alex to learn from the pain of this experience: “You stepped in a bear trap, and guess what? It ripped your leg off. It’s such a trap, though. It’s such a ripoff.”
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A Warning For Anyone Living On The Edge
Warshaw pointed out a hard truth for listeners: many are one emergency away from financial collapse. “He had no margin,” she said. “All it took was one little flick and then all the dominoes fell down.”
Ramsey agreed, saying that without an emergency fund, people are at the mercy of “corporate America [which] has one job and it’s piss on their employees.”
“They don’t come in and tell you like seven months from now we’re going to lay you off,” he said. “They come in and tell you seven minutes from now you’re leaving the building.”
He stressed the importance of having an emergency fund by comparing two situations: someone with $30,000 in savings and no debt can calmly ask about severance if laid off, while someone deep in credit card debt and without savings is likely to panic and turn to payday loans.
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