How to Get out of the Payday Loan Trap
Payday loans can seem like the perfect way to get some quick cash when you need it. They are a short-term solution to any money problems which you might have half way through the month before payday, and thousands of people take advantage of them each year.
However, many users of payday loans find themselves falling into a trap, where they need to continuous borrow money in order to stay afloat. Luckily, there are ways to avoid getting into this trap.
Even if you find yourself stuck in this cycle of repeatedly taking out payday loans, it doesn't mean that there is no way out.
Advantages of payday loans
Payday loans are so popular because they have many advantages. You don't need good credit in order to get a loan, which means that people with poor credit can get the cash they need quickly. They are very easy to access, and a simple online application form is all you need to fill out to get one.
Customers are generally not allowed to borrow more than $1000, which means there is a small chance that you won't be able to pay it back when payday rolls around. Since you can only borrow small amounts of cash, you won't have a daunting amount to pay off on payday.
The payday loan trap
Getting trapped in the cycle of payday loans usually starts when you take one out but then cannot repay it on your payday. This could be because you haven't been wise with your money, or you have too many bills to pay and don't prioritise the payday loan repayments.
Since you are unable to pay back the money using your own income, there are a couple of ways you can handle the situation. Many people often turn to other payday loan companies, choosing to borrow more money in order to pay off the first payday loan. This usually means that they are able to pay some or all of the first loan off, but now have a new loan. If they don't repay this loan on the due date, the cycle continues until they owe various amounts of money to different payday loan companies.
When you are unable to pay off the debt by the due date, you will incur late fees and more interest charges, which will drastically increase the amount you owe to the payday loans company. Since you now have a higher amount of money to pay off, it makes it more difficult to fully pay off the debt, creating a more long-term problem.
Getting out of the trap
The best way to get out of the payday loans trap is to come up with a solid plan. You can do this by discussing your finances and repayments with the loans companies which you owe money to. If you only owe 2-3 companies some money, it is easily manageable, and depending on how cooperative the companies are, you could be able to set up a reasonable repayment scheme.
If you have more companies to pay, it can become a little more complicated, but you should still be able to contact them and arrange to pay off some of the debt. For example, you may be able to pay them $20 per month each rather than larger amounts which you cannot afford. Even though this means you'll be paying off the debt for a longer period of time, at least you will eventually be debt-free.
Try to pay off the smaller loans first in order to reduce the number of loans companies you are dealing with.
You should also open another bank account so that the payday loans companies do not have direct access to the money from your paycheck each month. You will then have more control over what you pay them, and you'll still be able to pay off your own household bills and other expenses without worrying about your money being taken in repayments.
Be cautious and sensible
Payday loans can be very helpful when you need them, and there is no reason why you shouldn't apply for one when you need a little bit of emergency cash. However, exercising caution and being sensible with them is extremely important.
When you take out a loan, always make sure that you will be able to pay back the money on the due date. Read the contract thoroughly before you sign it electronically, and make a note on your calendar of the date it must be repaid.
When you receive your paycheck, make the loan repayment your first priority. By doing so, you won't incur any debt, your credit score won't be damaged and you'll be able to enter the next month without any stress or debt to pay off.
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