Avoid Getting Caught in a Short Term Loan Debt Spiral

It is unfortunate that many Australians struggle to meet their expenses, living in severe financial stress. Six million Australians are living paycheck to paycheck. Often, waiting for their next payday leads them to experience a cash deficit when hit with a sudden bill or emergency expense throughout the month. For most of these workers, the temporary solution is to whip out their credit card, take funds from their important savings accounts,  purchase goods and services using Buy Now Pay Later services or access high cost payday and consumer loans.

Many of these financial products are designed to exploit the recurring financial stress experienced by those in this situation. The fees and interest structures are implemented to ‘trap’ customers into debt spirals, increasing their reliance on these expensive financial products. When hooked, it often takes victims many months (and sometimes years) to recover from. Of course, not only are these employee’s personal lives challenged, but their ability to perform in the workplace is too.

People are hooked on short term loans

It’s easy to see how it happens. You’re short on cash to pay a bill, and you reach for your credit card. Of course, when the payment rolls around next month, you will likely also be short on cash, meaning interest and late-fees are charged. The following month, you owe more than you initially borrowed, exacerbating the cycle and encouraging even more debt. Products, such as credit cards that allow users only to make minimum payments over time encourage debt accumulation. Consumers will often end up paying far more than they intended, damaging their credit score in the process. 

How you can avoid debt spirals

If you find yourself in a debt spiral, or want to know how to avoid one, you need to focus on achieving short to medium term wins. Such debt solutions, as mentioned above, all come with high interest charges on your outstanding balance, therefore the goal is to reduce this debt as fast as possible to prevent future accumulation. Here are a few steps to take immediately:

  • Know the details. Write down how much you owe, the interest rate attributable to each loan, as well as when each payment is due.
  • Use any free funds to pay down the most expensive (highest interest rate) loan first.
  • Budget hard and set aside a sustainable amount of money to put towards repaying your debt.
  • Ensure you are never paying late fees. Do not miss minimum payments.
  • Always pay at least the minimum amount, as well as any amount you can afford above it.
  • Never use one loan to pay off another. It might seem tempting to use a cheaper loan to pay off a more expensive one. However, you’re likely creating more problems than solutions.
  • Never take out another loan while paying an existing one-off.

There is a better, longer-term solution

While short term corrective actions may help avoid, or escape, a growing debt trap, you also need a long term solution. While living paycheck to paycheck is far from ideal, there are alternatives to manage the reliance on debt. Earned Wage Access (EWA) offered by Paytime allows employees to access their earned wages before payday. At the end of each workday, the employee is able to access a mobile app, called Paytime, to see how their earned wages are accruing in real-time. They may then choose to draw down some of their earned wages at any time in any given month , for a small fixed fee, often less than the cost of a cup of coffee. Similar to an ATM fee. It’s NOT a loan, the money accessed is their earned wages – it does not need to be repaid and there’s no interest owed, ever! 


Paytime’s solution is designed to reduce the likelihood that employees fall into debt spirals. If you are able to access your earned wages when an unexpected bill arrives, there is no need to turn to additional debt as you can simply access a portion of your earned wages to cover the expense you have. Financial stress is not helpful for anyone – stressed employees are less productive, take more sick days, more likely to leave the role and be less engaged in the workplace. EWA is an incredibly practical and useful tool to reduce financial stress while also benefiting the offering organisation – it’s a win-win.