I’m sure you have all seen those ads on TV where companies offer to provide you a loan that will put money in your bank account in less than 24 hours. These offers can seem like a lifeline for those in dire financial straits, but taking out one of those loans can leave you in an even worse financial mess than what you started with.
Payday loans charge ridiculous repayment fees, but these are not really referred to as interest, as this is considered an advance as opposed to a loan. If you cannot afford to pay back the full amount plus the fee on the due date, you can pay the fee to extend the loan, which means another fee will come next time the amount is due, and nothing will be taken off the principal.
In short, you end up stuck in a loop that leaves you paying back 600-700% of what you initially borrowed. Do not get caught in that trap.
Improve Your Credit Score First
If you were forced to go for a payday loan because of bad credit, work on improving your score. Once you get that score into the 600’s, you should visit your local credit union and talk to them about getting a loan.
Refinance Your Loan At A Bank
It is usually easier, not to mention cheaper, to get a loan there than through a major bank. You can then refinance the amount outstanding on your payday loan and pay it back in a much shorter period of time, and all without shelling out a fortune in fees.
Things get even easier of your score is over 700, as you have all kinds of personal loans and credit card options available to you at that point. Yes, you are essentially using debt to get out of debt, but at a much more manageable rate.
Look Into Debt Consolidation
If you have a pile of debt over and above your outstanding payday loan, the banks and credit unions may not be able to help. What you need to look at here is debt consolidation. There are plenty of reputable companies out there who will help you consolidate your debt and get it all down to a single monthly payment that actually fits your budget.
It can be impossible to clear off all your debt if you are essentially robbing Peter to pay Paul, but having single payment makes it that much easier, and takes away a lot of the stress that comes with juggling bills.
Pay A Little More Each Month
If the only option you have is to continue extending the payday loan, at least try to pay a little over and above the fee. For example, if the extension fee is $25 per week, try to find an extra 50% ($12.50) to pay over and above that fee. You will them be putting some money towards the principal, which will help you eventually get it cleared off.