Payday loans are one of the easiest loans to get, but they’re also manipulative. In case of urgent need for money, there is no doubt that you will be able to obtain a loan quickly. However, if you are not careful, you may find yourself trapped in an endless cycle of debt. Your debt term 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 repayment burden.
Quick access, on the other hand, is an expensive habit, and the amount you use to repay these loans will keep you from regaining your footing.
If you fail to arrange for a payday loan, your credit score could be affected and it will then be very difficult for you to apply for a loan in the future.
In the event that you are locked into a cycle of high debt, there are alternatives available that can prevent you from being trapped in the cycle of debt. Acting quickly can help you reduce your expenses and get better and more attractive financing terms.
Can borrowers avoid the debt trap when using payday loans?
It’s hard, but not impossible.
We have come up with ways you can simply stop the debt trap when using a payday loan.
1. Establish a contingency fund for unexpected expenses:
Until you accumulate assets, put in place a good investment strategy to meet your emergency fund needs.
There are several investment options available to you, such as insurance plans, etc., which can help you in an emergency and save you from having to take out this loan.
2. Reduce expenses:
There are times when you will have no choice but to apply for a payday loan due to an unforeseen emergency, and that’s understandable; nevertheless, if you develop a practice of frequently taking out payday loans to satisfy your unreasonable needs, your budgeting will require considerable attention. Be conservative with your budget, cut 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 take inflation into account and be absolutely sure that your funds will be sufficient to cover future needs. Improve your credit score to qualify for cheaper loans from lending institutions. This will surely reduce the possible need for payday loans in the future.
4. Request a loan from a new lender:
If your payday loan is piling up and you still don’t want to be trapped in the same cycle of debt, you can apply for a loan from a new lender other than payday lenders. To obtain a private loan, you can contact various official lenders in your vicinity.
You can also choose to consolidate your debts. You can also apply for a loan from another lender to settle your payday loan.
If your credit score is one of the things that bothers you, you can ask a friend or family member to take out the loan on your behalf. People close to you who also have a great credit history may be able to help you get a loan to pay off your payday loan and end the debt trap.
5. Consult your payday loan institution
Those who give out payday loans will always want to get a refund. Therefore, if you let the payday lenders know that you are having trouble repaying the loan, they might be able to generate a particular solution that benefits both parties. These lenders may allow a debt settlement strategy or give you a longer payment term to accommodate your financial situation. In any case, you will have no problem repaying your personal loan in a short time.
6. Seek help from relatives and friends.
Your relatives and friends are the ones you can just turn to when you need help. However, now is a good time to visit them. Find out if you can borrow money from them in order to stop the debt trap of payday loans. You can simply assure them that you will pay back in no time, they should be able to understand your current situation. Your relatives or friends might not even charge you interest on the loan they give you.
7. If you have a reserve fund, put it to good use.
Using your savings or investments for emergency purposes can be a great idea if you have some set aside for that purpose. However, stopping your payday debt trap will also allow you to avoid the high interest that comes with the loan. You will be able to collect your rescue money quickly. If possible, spend some of the money to give yourself some breathing room while you wait for additional sources of income to settle your payday loan debt.
8. Seek professional assistance
You should keep in mind that it is necessary for you to seek expert help if you are unable to achieve positive results despite following any of the measures outlined above. There are several credit counseling agencies available to help you with your payday loan debt. They will contact the lender and work with you to find a way to settle the debt. Seeking professional assistance will definitely go a long way in stopping the debt trap when using a payday loan.
The tips provided above will surely help to stop the debt trap when using payday loans. Do not forget that it is quite possible to stop the debt trap when using a personal loan.
This article does not necessarily reflect the views of the editors or management of EconoTimes