Payday loans are one of the simplest loans to obtain, however they are also manipulative. In case of an urgent need for money, there is no doubt that you will be able to get a loan quickly. However, if you’re not careful, you can get trapped in an endless cycle of debt. The duration of your debt will last much longer due to the huge interest rate you will pay on your loan. You can also continue a particular loan more than once to avoid a payment burden.
Quick access, on the other hand, creates a costly habit, and the amount you use to pay off those loans will keep you from breaking even.
If you default on a payday loan, your credit score could be affected and this will make it quite difficult for you to apply for a loan in the future.
In the event that you are trapped in a cycle of high debt, there are alternatives available that can prevent you from being trapped in the debt cycle. Taking quick action can help you keep costs down and get better, more attractive financing terms.
Can Borrowers Avoid the Debt Trap When Using Payday Loans?
It is hard, but not impossible.
We’ve come up with a few ways you can simply stop the debt trap when you use a payday loan.
1. Establish a contingency fund for unexpected expenses:
Pending the time when you’re building assets, come up with a good investment strategy to meet your emergency fund requirements.
There are several investment options available to you, such as insurance plans, etc., which can help you in times of emergency and save you from having to take this loan.
2. Reduce expenses:
There are times when you’ll be left with no choice but to apply for a payday loan due to an unexpected emergency, and that’s understandable; however, if you develop the practice of taking out payday loans frequently to meet your unreasonable needs, your budget will need considerable attention. Be conservative with your budget, reduce the budget and only buy what you really need.
3. Make a long-term plan:
Set up emergency savings and contribute to them on a consistent schedule. You must account for inflation and be completely confident that your funds will be sufficient to meet future needs. Improve your credit score so you can qualify for cheaper loans from lending institutions. This will surely reduce the possible need for payday loans in the future.
4. Apply for a loan from a new lender:
If your payday loan is piling up and you still don’t want to get stuck in the same cycle of debt, you can apply for a loan from a new lender other than payday loan lenders. To get a private loan, you can contact several official lenders in your neighborhood.
You can also choose to consolidate your debts. You can also apply for a loan from another lender to pay off your payday loan.
If your credit score is one of your concerns, you can ask a friend or family member to take out the loan on your behalf. People close to you who also have excellent credit can help you get a loan to pay off your payday loan and put an end to the debt trap.
5. Check with your payday loan lending institution
Those who offer payday loans will always want to get paid back. As a result, if you let payday loan lenders know you’re having trouble paying back the loan, they may be able to come up with a mutually beneficial solution. These lenders may put together a debt settlement strategy, or may give you a longer payment period to suit your financial situation. In any case, you will not have any problem paying your personal loan in a short period of time.
6. Solicit the assistance of family and friends.
Your family and friends are the ones you can simply turn to when you need help. However, this is the right time to visit them. Find out if you can borrow money from them to stop the payday loan debt trap. You can simply assure them that you will pay in a matter of time, they should be able to understand your current situation. Your family or friends may not even charge you interest on the loan they give you.
7. If you have a reserve fund, take advantage of it.
Using your savings or investments for an urgent purpose can be an excellent idea if you have one set aside for this purpose. However, stopping the payday debt trap will also allow you to avoid the high interest that comes with the loan. You will be able to collect your ransom money quickly. If feasible, spend some of the money to give yourself some breathing room while you wait for additional sources of income to pay off your payday loan debt.
8. Seek professional assistance
You must bear in mind that it is necessary that seek expert help if you cannot get any positive results despite following any of the measures described above. There are several credit counseling organizations available to help you with your payday loan debt. They will contact the lender and work with you to find a way to pay off the debt. Seeking professional assistance will surely go a long way in stopping the debt trap when using a payday loan.
The tips provided above are sure to help stop the debt trap when using payday loans. Don’t forget that it’s very possible to stop the debt trap by using a payday loan.
This article does not necessarily reflect the views of EconoTimes editors or management.