How to Get Out of Payday Loan Cycle?
Many people are struggling when it comes to managing their finances. There comes a time when you are in need of cash and you don’t have that much option, most would go for payday loans. There is nothing wrong with taking out a payday loan, especially when you really need it. However, there are instances where people find it difficult to manage their loans to the point that they experience debt problems. How do you get out of a payday loan cycle? How do you achieve financial freedom?
The moment you start thinking that just because it is easy to get a payday loan is the moment where you start experiencing problems. Just because it is convenient and fast does not mean that it is the right and the best thing to do. If you fail to pay the interest rate and a loan, you will incur late charges and this will make the loan a lot more expensive. This explains why there are so many people who fall into the debt trap.
Consolidate Your Debt: Is There A Good Way?
Think Long Term
For you to get out of that cycle, it is very essential that you think long term. You don’t just focus on the things you want. You try to find the root cause of the problem and the root cause is attributed to mismanaged finances that leads you to the possibility of getting a payday loan again. By knowing how to manage your finances and by having that financial discipline to do so, it is much easier for you to achieve your financial goals.
Once you are already at that point which you know how to spend your money wisely, you can start rebuilding your credit score. One of the main reasons why many people struggle and have loan options is because they have bad credit. Chances are if you have poor credit scores, you won’t be able to have as many options as other people. With poor credit standing, you are forced to go for lenders who often charge high interest rates or what you call expensive loans.
The good news is that there are definitely several ways for you to get out of the payday loan cycle. It is never easy. It takes time and a huge amount of effort on your part.
Here are some effective strategies to eliminate your outstanding loans:
- Stop getting more payday loans
For many people, getting a payday loan is the quickest and the most convenient way to get instant cash. After all, they are not like other kinds of loans. In fact, you can even submit your application online. At first glance, this may appear to be the best decision, especially when you are in need of cash and you don’t know where to get the amount that you need.
What many people are not aware of is that payday loans are quite expensive. Of course payday loan lenders will always try to market their loan packages saying that they don’t charge that high or the loan package is very affordable. But if you’re going to compare it with other kinds of loans, you can easily see the differences.
Now imagine yourself in a situation where you have one payday loan and you are struggling how to pay back this loan. The last thing that you want to happen is for you to get another payday loan simply because you are run out of cash. The next thing you know you will end up worrying about the new loan as to how you can pay it back again. To get rid of the cycle, you need to stop getting a new loan, especially a new payday loan.
- Look at the big picture
When you are experiencing problems in paying your payday loan, you have this tendency to be too focused on the specific amount you need to raise. Although there is nothing wrong in doing that just so you are aware of how much money you have to pay, it is much better that you focus on the whole picture.
By taking a look at the debts that you have altogether, it is way much easier for you to find opportunities and to plan to repay your loan. How do you do it? One of the ways is for you to list down all your outstanding loans. Take the time to record the details of the current outstanding loans, including the interest rates as well as the amount that you still need to pay. Some people may think that this may not be a good idea, especially when you are dealing with a big amount of money. Then again, if you know what you have to work on, you can at least identify ways on how to solve the problem.
- Set your priorities
As with any problem that you are dealing with, you have to set your priorities. When you know what type of loan you have to pay and how much each of these debts actually cost you, then you know what to prioritize. Financial experts will tell you that one of the things that you need to do is to prioritize those debts that are charging you high interest. The reason is that these loans are expensive which makes it more difficult to you to handle your finances and repay the other loans.
How do you get rid of a payday loan? You can actually restructure your debt or if you can find ways to raise the whole amount as soon as possible.
- Ask for extended payment plan
Compared with other kinds of loans, payday loans are costly and it is structured in a way that it is hard to repay. To wipe out your loan, you can actually find ways if it is possible for you to restructure your debt. One of the most common mistakes of borrowers is that when they are face difficulties paying the loan, they don’t want to talk to their lenders.
There is always that possibility that when you talk to your lender, you can get an extended payment plan. By asking if you can have the extended payment plan, your loan is divided into smaller payments. This allows you to pay back the loan. But the good thing is that you never have to worry about additional fees or other interest that you need to pay. There is actually no harm in trying to get in touch with your lender. At least, you know you have tried all the possible options.
What can you expect in getting an extended payment plan? Once your lender allows you to extend your payments, you will have to sign a new agreement. Under the new contract, the terms and conditions of the extended payment plan are provided.
Consider Refinancing with a Personal Loan
Another alternative for you to get rid of your payday loan is to refinance it using a personal loan. However, it is very important that you qualify for the personal loan before you can even choose this option. There are online lending companies that allow you to apply for a personal loan even if your credit score is below 600. Another option is that if you have your own credit card, you can actually get a cash advance and repay your loan. Then again, you need to keep in mind that this will only apply if you only have one payday loan or a few. In such cases where in there are several outstanding loans that you need to get rid of, the last thing you want to do is to get another loan that will make it even more difficult for you to pay back the loans.
Are you considering getting a personal loan? A personal loan is just one of the different types of loans available. However, this is more used for consolidating your debt or when you are in need of immediate cash.
Here are some FAQ about personal loans:
- Personal loans are considered to be unsecured loans. This only means that you do not have to worry about your assets being used as collateral. If you default on your loan, they cannot get any of your property. That is why this kind of loan makes it a more challenging and difficult to get. Since the lender cannot possess any asset in the event that you no longer able to pay your loan, it makes this kind of loan high risk on their part. That is why in applying for a personal loan, they usually look at your credit score and other factors to make sure that you are capable of paying back.
- The amount that you can get is fixed
Personal loans give you a fixed amount. It is not as big as other types of loans which range from about $1,000 to $50,000. The amount that you can get actually varies depending on the lending company, your credit rating, and your income. You can expect that if you have good credit score is that you can have more money that you can borrow when you apply for a personal loan.
- The interest rates are fixed
In the entire life of your loan, the interest rate is not changed. The lender takes into consideration your credit score. The higher your credit score, you can expect a much lower interest rate. This allows you to borrow a more affordable loan compared to when you have poor credit scores.
The repayment period is also fixed. You can either pay it in a year or two years depending on the terms and conditions of the contract. If you are for a longer repayment scheme, you can expect that the amount that you pay every month is much lower. However, when you look at the cost of the interest rate, it is actually expensive. This makes it a whole lot more difficult for you since you are tied with the loan and if you have other outstanding loans, this might not be the best option for you.
Try credit counseling
There are many nonprofit organizations that offer credit counseling programs. These programs are created to help borrowers were struggling to pay their payday loans and other debts. At first you may say that it’s not necessarily needed. Some people also have the tendency to attempt to do things on their own because they fear that other people would judge them or other people cannot really help them. Credit counseling will help you assess your financial situation.
These people have been working as financial counselors, they know exactly how to look at your situation and give you helpful advice. First of all, they can help you when it comes to setting up a concrete plan in order for you to get out of the loan cycle. On top of that, they may also know other lenders that offer cheap loans that you can use to refinance your other debts.
What can you expect from a credit counselor?
They can help you in so many ways. For one, they can give you advice on how you can manage your business. Second is that they can help you create a budget and even get a copy of your credit scores. By having access to free workshops and other materials, it is much easier for you to assess the situation and to organize plan in order for you to eliminate your loans in the long term.
You can look at the official website of the financial counseling Association of America or National Foundation For Credit Counseling. Take the time to make a list of different credit counseling organizations. You may want to also gather some information and call them directly.
- Find Ways to Increase Your Income
One of the main reasons why people take out personal or payday loans is because their current cash cannot meet their needs. It’s more difficult especially if you don’t know how to manage your finances. But if you’re looking for a long-term solution to get rid of your debts, you can actually find ways for you to increase your income.
- Find a part-time job
Although you don’t necessarily have to overwork yourself just to get enough cash, it doesn’t hurt if you have a part-time job. By having a part-time job, you can actually have side income that allows you to have spare cash that you can use for your daily needs. There are different part-time jobs that are available. When you have free time, instead of wasting your time doing nothing, you might as well put in a few more hours to get some income.
- Do a garage sale
Do you want to throw away old stuff and other things that you are no longer using? Instead of throwing them away, why not make money out of it? You can actually sell them really cheap price and there will be many people who may be interested to purchase these items. If you have so many items that you can sell, you can actually raise a good amount of money. Although the amount cannot entirely cover the actual cost of the loan, it will at least reduce your financial burden.
- Try uber
Nowadays, there are many professionals who use Uber. As an Uber driver, you can choose your time and number of hours. This kind of part-time job is very easy since you just need to drive your car and pick up and drop off your customer. The amount of money can be quiet good, especially if you are working in peak hours.
- Manage Your Finances
Last but not least is that it is very important that you know how to manage your finances. Having many payday loans speaks a lot as to how you handle your finances. It is very essential that you come up with a budget.
Rule of thumb is that never purchase something that you know you cannot afford. This will put you in the more difficult financial situation.
You need to discipline yourself financially and spend your money wisely. In the long run, it makes it a whole lot easier for you to avoid situations where and you have to get a loan.