7 Ways You Could Be Completely Misusing Your Loan Funds
You may have heard a lot about how payday loans can push borrowers into a vicious cycle of debt. Yes, it can happen, but only when payday loans are severely misused.
Online loans are intended as cash that anyone can take out in an emergency. This money is intended to help out borrowers in emergency situations only. For example, if there's a bill overdue right now, cash advance can help cover it. Some borrowers use it to cover ER bills. Lending institutions do not provide small loans for cash-strapped consumers. This is where payday loans can step in and help.
However, as with most things, short-term loan money can be misused. Borrowers who misuse funds usually find themselves deep in debt without a way out. You could end up in a debt trap yourself. Read more at ConfumerFinance.gov.
Just make sure you don't misuse your payday loan funds in the following ways:
1. Buying Clothes and Shoes
Clothes and shoes are consumable goods. Their value only goes down, not up, as time passes. So, it's never a good idea to borrow money to buy clothes and shoes. Remember that short-term loans charge high interest rates. This rate is justified in a dire financial situation. It's never a smart idea to incur debt to purchase vanity items. Therefore, spend responsibly. Do not waste your funds on useless items.
2. Using the Money to Gamble
Nothing will push you deeper into debt than gambling. Borrowing money and a gambling habit are two things that should never mix. Both are high-risk ways to use money. When you mix the two, you will be so deep in debt, there might not be a way out. So, never, ever borrow money and gamble it away.
3. Spending the Funds on Luxury Items
It's tempting to borrow 500 or 1,000 dollars to buy a luxury item like a branded bag, a dress or even an electronic item. This is never a good idea. Luxury items are also consumable items. There is no intrinsic value attached to them. Once you have used a luxury item, you won't be able to sell it matching the original price. So, learn to live within your means. Otherwise you will be trapped in debt forever.
4. Doing Unnecessary Home Renovations
It's only sensible to use short-term loans do emergency repairs for a home. For example, if the roof caves in following heavy snowfall, you can use payday loan funds to get it fixed immediately. Your financial need is justified in this scenario. However, it makes no sense to borrow money at high interest rates to make unnecessary additions to a home. We would all love to live in nice houses. However, you could lose your nice house to a creditor if you keep going into debt to renovate it. As mentioned before, live within your means.
5. Getting Plastic Surgery
Do not use expensive loan funds getting unnecessary medical treatments like cosmetic plastic surgery. Beauty is not worth going into debt for. If you need plastic surgery for a medical condition, such as cleft palate, your insurer might cover the costs. However, you will have to pay out of your own pocket to get a liposuction or a tummy tuck. If you have the money already, then it's fine. However, it is simply unwise to borrow money to get a nose job.
6. Going on a Vacation
We all need vacation to unwind once in a while. People are supposed to return from vacations relaxed, not in debt. So, do not borrow money to visit an exotic location. If you are currently in debt, keep your vacation budget to a minimum. Go to places that you can afford without having to borrow money. For example, travelling locally is less expensive than flying away. Until you are financially sound, keep the vacation budget low. Cash advance funds are not intended for going on vacation.
7. Using the Money Solely for Entertainment Purposes
Do not borrow money to throw a party or to entertain friends. Wanting to impress your peers is an understandable desire. But you must prioritize your future finances over what a coworker might think about a party. Don't waste your cash on frivolity. Don't give it away to other people. And don't use it for the entertainment purposes of others either.
If you want to benefit from payday loans, you must use the money provided thoughtfully.
Use the funds towards essential activities alone. Use the money on things that grow in value, like a business. If you misuse it, you will end up in the aforementioned cycle of borrowing and spending without a way out.
Read more tips on proper use for payday loans at Investopedia.