For people who need urgent cash before their next payday, a payday loan is a great option to have. However, if you are not careful with your finances, it is easy to fall into a vicious cycle of having to use them repeatedly, and potentially racking up quite a bit of debt. One of the biggest pitfalls of payday loans is getting caught in a never-ending cycle of debt. The good news is, there are a number of ways that you can break free of the debt cycle caused by payday loans.
1. Recognize & Avoid the Payday Loan Debt Trap
The best way to avoid falling into a cycle of payday loan debt is to recognize it for what it is. Loan companies typically charge extremely high interest rates for their lending, or require excessive collateral. When these loans are not repaid quickly enough, then they can add dozens of late charges and filing fees onto the debt that you already can’t afford to repay.
When you absolutely NEED urgent cash and must take out a payday loan, then you should ensure that you understand the loan company’s terms entirely. It may take a few extra minutes, but the best thing you could possibly do is make sure that you understand all of the costs involved, what the total amount is that you will have to repay, and what other options may be available if you are unable to repay your debt on the due date. Then, MAKE SURE that you have funds in your account on the due date in order to avoid additional charges.
2. Pay Off the Loan as Fast as Possible
While it may seem like this one is common sense, one of the biggest problems in the payday loan industry is the amount of people who simply ‘take the money and run’ or find that they do not have the funds to repay it on the next payday. It’s a hard fact to face that taking a loan out for emergency funds, you are simply delaying the pinch on your wallet. When you have to delay the repayment of a loan, the lender usually tacks on a number of additional charges. In the end you could easily wind up repaying more than double the amount that you borrowed. This is why it is so important that you ensure the debt is repaid as quickly as possible, and that the money is in your account on the appointed due date.
3. Set Financial Priorities
While paying off your loan as quickly as possible is definitely a top priority, there are still some other necessities that must be considered (such as paying your rent or buying food). In some cases, you may even have additional debt to pay off, such as credit card debt or other loans. If you have additional loans or debt to consider, then it is highly recommended that you repay the debt with the highest interest rate first.
4. Pay Attention to Automatic Renewals
Another reason that it is very important that you understand your payday lender’s terms is automatic renewals. Some payday loan companies have an automatic renewal policy where they only take out the renewal fee on the appointed date, instead of the entire amount that you owe. This way, you are constantly paying extra fees and fines, while the actual amount owed is never reduced.
5. Don’t Accept Threatening Phone Calls
Some of the more unethical payday lender companies use scare tactics and may make threatening phone calls to you. It is important that you know your rights as a consumer and that such practices are illegal. You should never put up with this kind of treatment! If this happens, then you should firmly remind them that this type of behavior is illegal and unacceptable from them. If they continue to threaten you via phone calls, then you need to start recording their calls as evidence.
6. Check the Legality of your Loan
Whenever you must take out a payday loan, one of the most important things you should do beforehand is check the legality of your chosen lender. This is especially true for loans that are approved by online payday loan companies, where there is a risk that the payday loan could be illegal. In order to avoid accidentally getting into complicated financial and legal situations, you should always check to ensure that your chosen lender is legally allowed to lend you money. In addition, you should also check with the Better Business Bureau (BBB) to see how trustworthy they are and what kind of a customer service record they have.
7. Don’t Get Another Payday Loan
Once you have had to get a payday loan, it is easy to fall into a cycle where you must get one every pay period. While you may feel that you will never be able to afford to catch up your important bills and repay other obligations, this is absolutely THE WORST thing that you could ever do.
8. Organize your finances.
It is no secret that a family budget can do wonders for your finances, and payday loans are not an ideal solution for unexpected emergencies. Additionally, if you take out more than one payday loan, it is highly recommended that you remain organized regarding your lenders. This is done by keeping a close eye on both your loan’s interest rate and due dates.
9. Develop a plan for gaining extra money.
Sometimes, one source of income just isn’t enough to cover all of your monthly living expenses. If this seems to be the financial problem you are faced with, now is the time to consider a plan that will help you earn some extra money. This could range from taking a second job or working overtime at your existing job. You might opt to liquidate some of your unnecessary possessions with a garage sale.
10. Saving is the answer.
Once you have succeeded in paying off any current payday loans, it is time for you to start saving money. This will allow you to become more prepared for those unexpected expenses that are sure to occur in the not so distant future. Try to set aside a small amount of money every pay period, so you won’t need to secure another payday loan.
Goodbye Payday Loan and other Money Pitfalls
As you can see, it is possible to escape from payday loan debt with a little bit of planning and a lot of effort. Saving money and becoming financially stable is a learning process, one that requires determination and effort. Say goodbye to payday loans as you make saving money a lifelong habit.