It’s easy to get lured into the payday loan trap. It starts so innocently, like an addiction; you just want to try it out without intentions of staying in it for long. At first it’s very handy and convenient, then it develops into a habit and with more time it evolves into a nightmare you just won’t wake up from. In a few months you’re trapped in a debt cycle and you’ll be looking for exit strategies from debt counsellors and payday loan consolidation companies.
Say you’re low on cash, and you’ve borrowed the maximum you can on your credit cards, and your circle of friends are probably going through the same so no one is willing to lend you some money. Then you turn to a payday lender and request for a $250 loan which you intend to payback when you receive your next paycheck. This loan comes with a $40 interest, to be paid in a couple of weeks when your next paycheck is due—the interest doesn’t seem that much at first so you hope to be free of debt in two weeks.
Emergencies happen, say one befalls you and you’re in a situation whereby you’ve received your paycheck but you feel that you should sort out the emergency first then sort out the payday loan in another fortnight when you receive another paycheck so you pay some fee to extend your loan for another couple of weeks. On your next payday, you still have the lucrative option of paying the late payment fee and carrying the loan forward another two weeks.
What you don’t notice is that as the months go by, what you pay in late payment fee is adding up to your loan, the interest is adding up too and you’re trapped in a payday loan nightmare—well, maybe it still doesn’t seem like a big deal. That’s how payday loans are structured; the deal is made to seem so enticing that you just won’t walk away from it. On this post, I share with you some well-researched tips which if you follow diligently, you will effectively analyze your payday loans, pay them off and put end to the debt trap.
Study your payday loan debts—Take time to look at them in one sitting
You’re probably wondering why you need to look at the debts when you already know the figures off-head. Well, this is very important. When you meditate on somethings, they sink in deeper. Looking at the figures will challenge you take some action and that’s an important step. At times the figures will surprise you. You’ll even wonder how you got yourself into the debts. As you look at them, jot down the debts in a column and their interest rates against them and try to figure out how you can save more money towards paying them off.
Start by paying of the payday loans with the highest interest rates
The interests on payday loans pile up month after month. If you don’t pay a loan which attracts an interest of $40 a month, in a year you’ll have to pay $480 in interests alone, which could even be more than the principal. That’s just so unfortunate. Mathematically, if you start by paying off loans with small interests, you will pay more in total amounts as opposed to if you start by paying off the payday loans with the highest interests.
Renegotiate your loan
In as much as payday loans are structured to be difficult to pay off, the lenders are considerate. Especially if you explain to them your financial situation. They would rather restructure your repayment plan than risk you defaulting. You can negotiate for a lower interest rate or request for an extended payment plan—you may be lucky to get both. An extended plan basically breaks your loan debt into smaller installments which are easier to pay off. If you are considering renegotiating your loan, don’t wait till your loan is due.
Take a personal loan to pay off the payday loan
Most payday loans are expensive—because they come with high interests. And the rules on payday loans are usually more stringent than those on personal loans, more so if the payday loan lender is not a party to CFSAA and is not willing to offer you an extended payment plan. If you can access a personal from a lender with less stringent rules and lower interest rates than the payday lender, take the personal loan and use it to repay your payday loan.
Get an alternative to payday loans
There are many alternatives to payday loans which you may consider, if you’re tired of payday loans. The most renowned alternative is credit union loans. If you are a member of a credit union and you qualify for a loan, make it a priority whenever you consider taking a loan. Credit union loans are small and have much lower interest rates compared to payday loans.
Borrow from an understanding support network
You’re probably part of some support network. It could be a family group, a religious group, a club or a group of friends—if it’s a group which understands your situation and would be willing to lend you some money to help you get out of the payday loan nightmare, consider it a holy grail. However, borrowing money from a support network also has its challenges. If you don’t keep the rules it could mess up your relationship with the group members and the repercussions may run deep.
Increase your income and save money towards paying off the payday loan
At the end of the day you’ll have to pay off your payday loan. The sooner you put an end to the payday loan cycle the better. The best way to get out of the payday loan nightmare without making massive cuts on your budget is to increase your income. You can get a part time job, work overtime, get a weekend job, an online freelance job or make money out of a hobby. Whatever you opt to do to increase your income, channel the extra income towards paying off the payday loan.
Once you pay off your payday loan, try as much as you can to avoid payday loans—put an end to the cycle!
We hope that you found these tips insightful. Implement them and you’ll be glad you did.