Overspent and over budget. Brassic well before payday. Financially embarrassed. Broke. Financially incontinent. However it is described, being short of cash is no laughing matter, especially when the bills come thick and fast these days and the temptations to spend are high, from online purchases to contactless payments. But then what happens? The car breaks down; the boiler dies in mid-winter; the main water tank springs a leak. The last two may well be covered by the landlord for tenants, but cars, boilers and water tanks are expensive for homeowners too, and having them repaired can be a real money drain as these bills are never expected.
So how to avoid a financial trap? Many people will turn to a payday loan. This is a small amount of money given to the borrower for a short period of time. As with all short-term loans, the interest rate will be high, and the repayments are likely to be steep too. The ways that payday loan borrowers need to deal with meeting these repayments are exactly the same methods that they can employ to ensure that next time, the unexpected bill is not so much of an issue.
Firstly, those taking payday loans should consider their budget. If it looks unaffordable, it probably will be. Paying off the loan is likely to involve cutting out trips to the coffee shop, buying lunch, eating out, cinema trips, concerts, downloads, online shopping, new clothes…anything that might be called a ‘luxury’. Every spare penny should be used to pay the loan off. No kidding.
On a related note, payday loan users should read the paperwork slowly and carefully. The paperwork, legally, should be clear on monthly repayments, penalties and interest rates. Even something like a standard car finance deal can trip people up a few months down the line, so a payday loan is even more likely to cause extreme headaches, sleepless nights and money worries. If the option exists to ‘fess up to a family member and beg for help, it may be easier to manage the repayments in the long run.
Opening a savings account and diverting a certain amount of money every month by direct debit, no matter how small, is the best way to ensure this situation doesn’t happen again. Sure, unexpected bills happen, but with a savings cushion, paying off the extra is easier. Credit card users should not be tempted to put a large bill on a credit card either; this option, like a payday loan, has a high rate of interest. Plus, paying the minimum monthly amount on a credit card can easily lead to interest as high as that on a payday loan.
If all else fails, a debt consolidation company can help. The staff will advise on how best to manage repayments and existing bills. Repayment plans arranged through these firms will carry a management fee but the terms and amounts are likely to be manageable and they are likely to deflect all the calls hassling for additional payments.
Of course, it’s best to put these measures in place before deciding to approach a payday loan company or put a large payment on a credit card. For those who are already dealing with payday loan debt or spiraling credit card bills, the options outlined above will help manage the debt, pay it down slowly and prepare better for the next big bill.