Getting Out Of A Payday Loan Cycle For Good – Step By Step Process

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Q: Six months ago I was strapped for cash between paydays and decided to take out a $ 300 loan. The cost of the original loan was only $ 20 and I didn’t think much about it. Fast forward to today and I can’t get out of a payday loan cycle. I have 3 payday loans totaling $ 1,000 which is about the same as my take home pay every 2 weeks. I am caught in a cycle of repaying my loans each payday, then new loans to cover my living expenses for the next 2 weeks. How to get out of this mess? ~ Geoff

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A: Payday loans, although relatively small compared to other forms of credit, can have a significant impact on a person’s financial well-being. While the average payday loan amount is usually only a few hundred dollars, the term is very short (usually 2 weeks).

Many people who take out a payday loan find it difficult to pay it off in full with the borrowing costs on their next payday and still have enough money to live on until they are paid again. As a result, they find themselves forced to take out another loan, perhaps even online, with new fees once they have paid off their previous loan. Over time, these fees eat away at a person’s paycheck, which is why many payday loan borrowers end up having more than one unpaid payday loan at a time.

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1: Identify The Problem Behind The Payday Loan Cycle

Payday loans by themselves are not the problem; it is an expensive form of credit and a symptom of a problem, but it is not the problem. In order to solve a payday loan cycle At all times, it is extremely important to determine the issues you are facing that cause you to use this type of credit in the first place. Are you overloaded with other debt, such as credit card debt, and / or not eligible for other forms of conventional credit? Do you find it difficult to stay on a budget and set aside funds for emergencies as well as annual / seasonal expenses? Is it a deeper problem such as a spending compulsion or addiction (mild or severe) that keeps you in this cycle? living paycheck to pay check and rely on payday loans to make ends meet? Once the problem is identified, my best advice is to seek professional help if you don’t have the ability to fix the problem on your own.

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2: Track and identify all your expenses

Before developing a plan to resolve your payday loan cycle, you need to know what your actual monthly expenses are, what are the possibilities for modify your expenses, and how much money you will need to set aside each month to manage your annual and seasonal expenses. Track your expenses can be accomplished by:

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  • – Keep a small notebook with you at all times and record all your expenses
  • – Enter your receipts on a spreadsheet every day
  • – Use an application to record your expenses on a smartphone

Whichever method you use, be honest with yourself; a plan built on inaccurate information is a plan doomed to fail.

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3: Create a realistic personal budget

With the first 2 steps completed, it’s time to set up a budget. It will help you better manage your regular and seasonal expenses and set up a payday loan repayment plan. I have written extensively on budgeting in the past and instead of repeating all the steps I encourage you to check out “7 steps to a simplified budget”On our website to help you create a budget that’s right for you.

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4: Paying Off Your Payday Loans – The Steps To Take

A lot of people use payday or instant loans and other types of credit as a safety net, but when a credit addiction builds up debt you can’t afford to pay off, it’s time to cut yourself off before your bankruptcy. creditors. Managing on a cash basis going forward will really force you to think about every purchase because once the money is gone it’s gone. You will have to make tough short-term decisions until you have paid off your payday loan debts. Once these debts are paid off, you can review your budget and spending.

Here are the steps to follow to successfully negotiate the repayment of your personal loan debts:

  • – Find out how much you can comfortably afford to pay for your 3 payday loans each month.
  • – Offer each payday loan company a pro rata share of the funds you have each month or payday so they can see that you are treating them fairly.
  • – Before speaking to the representatives of these companies, I strongly encourage you to make objections on each of the checks (or direct debits) so that they cannot be cashed and leave you in a difficult situation.
  • – Before the maturity date of your personal loan, notify companies that you are unable to pay the entire loan and ask to speak to someone who can help you set up a repayment plan.
  • – Be prepared for the store rep to explain why this is not in your best interest and how it will affect your ability to borrow from them in the future. Getting out of debt is your goal and the price of that goal may be that you will no longer be seen as a good customer of the payday loan company.
  • – Let payday loan companies know that you have 3 overdue payday loans totaling $ 1,000 and have looked at your budget to determine how much you can afford to pay.
  • – Do not agree to contract a new personal loan with new charges for a longer period. Be firm in your position to process and repay your current loans only.
  • – Once the deal is reached, maintain your commitment until your debts are fully paid, otherwise you could jeopardize the cooperation of your payday loan companies.

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If you have difficulty getting started or find that you are not getting the cooperation you are looking for, please do not hesitate to ask for help from a non-profit credit counseling service. They have the experience to help you through the process.

The Basics for Breaking the Payday Loan Cycle

Debt and money worries can really take a toll on your financial and mental well-being. The sooner you fix your situation and break the payday loan cycle, the better off you’ll feel overall. Embrace learning new money skills and be proud of the progress you make each month. Before you know it, you’ll be back in the dark and debt-free.

Associated reading:

Alternatives to Expensive Personal Loans When You Have Bad Credit

When to file for bankruptcy may not be right for you

5 reasons to avoid instant payday loans

Scott Hannah is president of the Credit Counseling Society, a non-profit organization. For more information on managing your money or debt, contact Scott byE-mail, Checkwww.nomoredebts.orgor dial 1-888-527-8999.

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