You found yourself in a tough situation. Maybe you lost your job or your car broke down unexpectedly. Life happens, and sometimes you find yourself taking out too many payday loans.
The payday lending cycle can be really tough to break. But borrowing one debt to pay off another is never a good long-term strategy. It’s best to pay off your payday loan as quickly as possible before the interest and fees get out of control.
While it may seem tough, it’s possible to escape the payday loan cycle with the right strategy. Once you understand why payday loans are harmful in the first place, you’re able to make better borrowing choices. Let’s go through a few strategies to help you get out of this pesky cycle of borrowing and onto a debt free future.
What Is a Payday Loan?
Payday loans are one of the easiest financial arrangements to get into, and they’re notoriously the hardest to get out of. A payday loan is a very short-term loan usually under $2,000. It’s called a payday loan because it’s designed to help you if you’re strapped for cash before payday. It’s meant to be paid off as soon as you get your next week’s or fortnight’s pay.
The application process can take only minutes, making it an easy choice if you need money quickly and if you have bad credit. On the surface, this might not sound like a bad deal. You need money, and payday loans give you access to it quickly. However, as you’ll soon discover, there’s a lot to be worried about.
Why Are These Loans Dangerous?
Payday loans are meant to be a short-term fix. They may sound like a good idea if you’re in a pinch, but they carry very high fees. In fact, many of them charge a 20% establishment fee plus a 4% monthly fee that is based on the total loan amount.
Let’s say you borrow $2,000 over 12 months. Your establishment fee will be $400 (20% of the total amount borrowed), and your monthly fees will add up to be $960 (4% per month), making for a total loan amount of $3,3360.00 That’s an extra $1,336 – over half of the original amount you borrowed! If you needed fast money in the first place, odds are you can’t afford that kind of repayment in such a short amount of time.
While payday loans may seem like a great short-term option, if you don’t pay them off quickly you’ll pay a hefty price in repayments and loan fees. All of these extra costs just spiral you into debt further. To see what your repayments are really costing you, check out this payday loan calculator.
When Do You Have Too Many Payday Loans?
In general, even having one payday loan is having too many. The most obvious problem here is the expense. The interest rates and fees for these quick-fix loans are outrageous, and they add up rapidly.
Once you find yourself trapped in one payday loan, you might end up needed a second to get out of it. Then a third to get out of that, creating that dreaded payday cycle you hear so much about. The reason for taking that original loan out in the first place was not having enough funds, so you can see how this just makes the situation worse.
Once you have one or two payday loans, you need to focus on paying them down as quickly as possible. That’s when it helps to bring in a financial expert. Get in touch with one of the friendly professionals at Debt Busters have over 15 years of experience helping people reclaim their finances to recover from debt. Call us today on 1300 368 322.
How Can You Overcome This Lending Cycle?
If you do find yourself with one or more payday loans, don’t lose hope. There is a world beyond this cycle, and you can escape with a little bit of effort. Here are the most common ways to tackle those pesky payday loans:
- Reach out to family and friends – Sometimes it pays to swallow your pride and get the help that you need. Talk to your family and friends about lending you what you need to get out from under your payday loans. However, make sure you come to an agreement on how you’ll pay them back.
- Sell your things – You may have a few items lying around the house that you can sell online or through a garage sale that can help make a dent in your payday loan.
- Pick up some overtime or part-time work – Think of it as short-term pain for long term gain. The sooner you’ve got your payday loans under control, the better off you’ll be, so pick up some overtime or part-time work if it’s available to you.
- Get a personal loan – If you need extra help getting your payday loans under control, a personal loan can help. A personal loan allows you to consolidate your debts into one easy and affordable payment at a significantly lower interest rate. This can be a great option depending on your level of debt.
- Try an informal payment arrangement or debt agreement – With either an informal payment arrangement or a debt agreement, you can come to an agreement with your creditors to pay off your debts on terms that make sense for you, often at a reduced rate.
How to Avoid Payday Loans in the Future
There are two main reasons people find themselves falling into the trap of payday loans: bad credit and a lack of savings. In order to avoid these traps in the future, you need to make changes today.
You’ll need to tackle both of these challenges head on, in addition to paying your debts down as soon as possible. Once you’re in a place where you no longer have to worry about your payday loans, it’s time to get to work.
Whether it’s borrowing money from a friend or seeking out another debt solution such as a personal loan or informal payment arrangement to consolidate your debts, it is possible to break the payday lending cycle. From there, you can work with a financial adviser to make the most of your current situation.
If you’re going from payday loan to payday loan and you need some expert advice, we’re here to help! We’d be happy to walk you through your options. Call 1300 368 322 to talk to one of our friendly experts today.