The payday loan business has seen tremendous growth over the past few years mainly due to the tough economic conditions that millions of Americans are facing. A payday loan is a short-term loan which is meant to be fully repaid within a very short time period- usually in two weeks (or the borrower's next payday). These loans are very easy to get. For individuals with bad credit, a payday loan lender is sometimes the only choice available to access quick cash.
Because these loans come with extremely high interest rates and fees, financial experts warn that they should only be used for true financial emergencies. However studies have shown that the average payday loan borrower takes out 3-5 loans within a twelve month. Research also indicates that the vast majority of payday loan volume each month consists of loan renewals rather than new loans.
Since quick cash is so easy to get with a payday loan, many consumers become dependent on the extra money each month which they then use for everyday living expenses. This can quickly lead to a cycle of debt that is very hard to break.
How to Get Out From Under Payday Loans
By changing your spending habits and taking control of your finances, you can insure that overwhelming debt will no longer be a part of your life. Here are some sound suggestions to help you break the payday loan habit.
- Stay calm. Don't beat yourself up about getting into this financial "mess". Feeling guilty won't help the situation. You just need to recover and learn from the experience so that you won't repeat it.
- Go over your budget. If you don't have a budget, now is the time to make one. Once you have a clear picture of both your monthly income and monthly expenses, you can determine where to make cuts to reduce your living expenses and free up more cash.
- Change your spending habits. Getting out of debt is nearly impossible without seriously changing your spending habits. Instead of stopping at your local coffee shop every morning for a cappuccino, brew your coffee at home and take it with you. This could save you $5 a day. While that may not seem like much at first, it could actually save you around $100 a month- money which could go towards reducing your overall debt. Instead of going out to a restaurant, eat dinner at home. Renting movies is inexpensive compared to the cost of cinema tickets. Small changes can yield big results.
- Talk with your lender. Explain your situation and ask for a payment arrangement. Your lender may require you to pay the interest on the loan and will grant you an extension of another two weeks. He may also freeze the account and agree to a repayment plan. Never ignore your financial problems. It only makes matters worse.
- Gradually reduce the amount you borrow. If you are paying off one loan by taking out another payday loan every two weeks, you need to gradually reduce the amount you are borrowing. If you are depending on an extra $300 every payday, slash your spending and only borrow $200. Each payday, reduce the amount until you are no longer depending on payday loans for additional cash each month.
- Increase your income. Consider getting a second job (this may be only temporary). Clean out your house and have a yard sale. The internet also has many websites dedicated to selling personal items. You will not only have less clutter, you will also have extra cash to put towards paying off your debt.
- Seek credit counseling. Shopping, spending and debt can be very addictive. If you find that you cannot go it alone, contact a reputable credit counseling company for additional help and support.