By: Gemma Lagasca
Payday loan is an advance credit provided by loan operating businesses with your pay check as guarantee. It is like advancing the money that you are about to receive for the upcoming payday. These kinds of services are usually charging higher interest rates than banks – reaching as much as 400% annually. Post-dated checks are required as collateral prior to granting the loan.
Is Payday Loan helpful?
It takes only one instance to be hooked into this never-ending cycle. Aside from the over-charging of interest rates, you only have 14 days to repay the loan. It is true that you can easily borrow the amount of money you need anytime and anywhere using this system. However, your financial situation will get worst once you started linking your life with it. Upon receiving your monthly pay check, it will go straight to the credit establishment to pay for your advances. How will you survive until the next pay day? Of course, you will be tempted to renew your loan again – paying a substantial part of your pay to lenders for the accumulated interests instead of spending them for your needs. This cycle will not end unless you stop relying on it.
How to Prevent Resorting to a Payday Loan?
- Create an emergency fund. It should only be utilized for your emergency needs such as household wears and tears. Set aside a certain amount every payday until you saved at least $1,000 to $ 2,000 for your emergency fund. If you will do that little by little, you will no longer think of payday loans. If you happen to use your emergency fund for any reasons, make sure to replace it at once to avoid inconvenience that can come your way later on.
- Include a sinking fund in your monthly budget. It is normally intended for car repairs especially when your car is old – where spare part replacement is a must. It will be lighter for you to set aside a certain amount as part of your monthly expenditures for the basic needs. That way, you won’t have to compromise borrowing from payday loan providers to cover unexpected expenses.
- Apply for a credit card but use it only for emergencies. Credit card is a much wiser financial facility to use than payday loans. It has lower interest rates compared to payday loans. However, ample discipline is needed so as not to accumulate unbearable debts. Once you get used to using your credit card for lifestyle enhancements, you will surely ruin your regular budget. Avoid waking up one day to find that you are already sinking into an endless hole of debts.
- Inquire how to avail quick loans from your bank or any affiliated credit union. They have loan services similar to payday loans but still following the standard allowable interest schemes. It is even a good idea using this loan to pay off existing payday loans that you already have – but be firm in staying away from them after clearing them out. That way, your loans are consolidated in one entity for convenience and manageable charges.
Payday loans should be avoided at all cost. Financial stability can never be attained when you are tied up with these kinds of responsibilities. Do not create another nightmare by relying on this temporary solution. Start saving now to never resort to any forms of credit again.
Image Source: Wesla