How To Avoid Getting Trapped In Payday Loan Debt
It's no secret that many people are living paycheck to paycheck. A survey conducted to determine how prepared people are to deal with financial emergencies found that 27 percent of those interviewed had no money in savings and 50 percent only had enough savings to cover less than three months of expenses. While it's okay to turn to payday loans to help you out of a financial bind, use the following tips to ensure you don't get in over your head when borrowing money.
Shop Around for the Best Deal
Ideally, payday loans should be treated as a one-shot deal to be used in an emergency situation and paid off right away. Unfortunately, according to a report published by the Pew Center on the States, people are using them to supplement their income so they can pay for necessities such as food and electricity. The average person took out $375 and paid about $520 in interest on that money. This means that, despite your best intentions, you will probably end up renewing the loan multiple times before you actually pay it off.
Therefore, you should treat these loans like any other form of credit. In addition to shopping around for a paycheck advance company that offers the lowest fee, look for one that offers benefits that help you pay down the loan or qualify for a better deal.
For instance, some companies give customers reward points for making on-time payments. These points can be used to lower or eliminate the fee, which may make it easier to pay off the loan. Other companies track how well customers do with their payday loans and then help them get regular low-interest loans that help them rebuild their damaged credit, giving them a chance to escape the payday loan trap.
If you have to take out a payday loan, make sure you get something out of it other than an endless cycle of debt.
Pay Down the Principal with a Side Hustle
If you know for a fact you won't be able to pay the entire loan off with your next paycheck, then you should immediately start looking for ways to at least pay down the principal each time you renew the loan. In addition to reducing how much you owe, paying on the principal will decrease the amount of fees you're charged.
For example, say you take out a loan that costs $10 per $100 to renew. On a $500 loan, your renewal fee will be $50. If you pay an extra $100 towards the principal, your new loan balance will be $400 and you'll only need to pay $40 to renew the loan.
The trick is to find something you can do in your spare time, which may be challenging if you're already working two jobs and taking care of kids. However, there are numerous ways to generate extra income without requiring too much time or effort. For example, you can donate plasma, offer services such as writing or graphic design on an Internet crowdsourcing platform, or sell homemade crafts.
Search the classified ads for odd jobs you can do on your free days such as helping someone move or running errands. As long as you remain disciplined and apply the money you earn towards your payday loan, you'll only need to work your side hustle for a short time.
Don't Be Afraid to Throw in the Towel
It's easy to get caught in a cycle of debt if you're not careful. Before you know it, you're juggling multiple payday loans and getting behind on other bills because most of your money is going towards paying fees. While defaulting on a payday loan is not ideal, this may be the best option if you're
- Constantly extending the loan without making any effort to pay down the balance.
- Taking out additional payday loans to help cover increasing budget shortfalls.
- Racking up additional fees from bounced checks, late payments and other issues related to the inability to continue maintaining the loan.
Many times the company will let you make payment arrangements to pay off the loan and avoid unpleasant collection activity that could potentially ruin your credit.
At the same time, filing for chapter 7 or chapter 13 bankruptcy may be the best option for your situation, especially if you have a lot of credit card or medical debt that's eating up a good chunk of your paychecks. A bankruptcy can help you reorganize your finances and get your money issues under control.
If you are in over your head with payday loans and looking for a fresh start, talk to a bankruptcy attorney about your options for eliminating that debt. You can also learn more about your bankruptcy options online at a site like http://www.howardgoodmanlaw.com/.