Many people fall into the painful trap of payday loans. The deal is usually so enticing that we hardly think twice about taking the payday loans. Its human nature to try to meet our needs quick and we often do anything to meet these insatiable burning needs, even if it means taking an unnecessary loan.
Let’s use this example as a case study; the latest iPhone which costs about $1020 is released into the market, and to add this accessory to your flashy lifestyle, you decide to take a payday loan of $1100 with a 20% interest. In a few weeks, another emergency arises and you’re forced to take another quick loan. Before you know it, you will be hooked into a chain of payday loans that you wouldn’t be able to pay as initially planned.
Your initial plans to pay off your loans becomes shattered when another emergency occurs which you have to take care of too. You’ll probably ask for helping hands from friends who are also indebted like you or even worse. So you run out of options and once more you turn to payday lenders. Eventually, the payday loans will weigh you down and the next thing you’d consider is payday loan consolidation.
Many people get lured into taking the payday loans and they do so without a clear plan of paying the debts off. It’s usually an impulsive decision. On his post, we will give you five proven tips on how to get off the payday loan trap.
1. Request the payday lender for Extended Pay Plan
Creditors structure payday loans in such a way that they are attractive yet expensive and difficult to repay. Most of these creditors are usually willing to restructure the loans if debtor gives them a valid reason to. Try to negotiate a payment plan with the lender or rather ask the lender if you can get an Extended Payment Loan, which will break your loan up into smaller installments. You will have more time to repay the loan, and you won’t be hit with additional fees or interest in the meantime.
All that is needed is to ask before closing on the last business before your loan is due. You will also have to sign a new loan agreement with the terms of your extended payment plan. Make sure you read it carefully and understand the full terms before you agree.
2. Borrow from a Savings and Credit Organization or a support group
Many Americans are in some support groups. These support groups could be formal or informal. If formal, they probably have some constitution which governs how members save and access soft loans. When things go really bad and you don’t have any means of paying off your loans this are the people you can go to. Politely ask for a helping hand towards settling this loan. You have to be trusted by them to be given a helping hand. Sit them down and write your terms of payment including the period of payment. Commit to this by signing against your name. Since these are more of friends and family than creditors, do your best to keep to their terms to maintain the good relationship.
Many churches have charity groups, they are more of well-wishers than business people.
3. Pay off Loans with Highest Interests First
It’s economic to paying the least amount of money toward your loan is by paying off the loans that charge the highest interest rates first. Carefully list down all your loans starting from the smallest to largest loans. On the other, list the loans starting with ones with highest interest rate to the one with the least interest rate.
Consider a payday loan of $1000 with a 20% rate interest charge. After 12 months of paying $200 interest charge, you will have paid a total of $2400 which will be way higher than the principal amount. It is therefore economical to settle off the high interest loans first. This does not mean that you don’t pay the minimum monthly payments for the other loans. Paying the minimum monthly charges ensures that no extra fees is levied on your other loans.
4. Diversify Your Income
People take payday loans because their income is not enough to settle all their bills. You cannot pay off this payday loan with ease if you still make the same amount in income as you did when you got into the debt(s). If things have to get better for you, something about you has to change. Find an income generating activity to do after your normal working hours; create some time for a freelance job before you sleep, work extra hours at work and plan to work during weekends. In case you have a hobby you’re passionate about, use it to get some extra income. When you apply any of these avenues for more income, channel the cash you acquire to paying off your payday loan.
After you have increased your income and stabilized try and set goals on your expenditure by drawing a budget. Prioritize on your expenses. Know your needs and wants and think wisely on whatever cash you use. This will help keep your hands off loans. Above all, try not to use credit cards but cash when making purchases.
5. Negotiate New Loan Terms with Your Creditors
Creditors are business people who aim at maximizing their profits. They will therefore make terms that will stretch your pocket to the maximum and you have to sweat it to pay off your loan. Whenever you run out of options of paying off your loan and the only option left is defaulting or filing for bankruptcy, consider renegotiating terms with your creditors. Explain your situation to them, let them know that if they can relax their terms, you will be forced to default. Since they will not want to incur a total loss they may reduce your interest rate to manageable levels, lengthen your payment period or both.
Try any of these or a combination and realize how you can manage your payday loan effectively.