Payday loan debt is a short-term financial help before your next payday. As your lenders can charge you a horrendous interest rate, the fast cash loan can lead you to a deep debt problem that you can’t get out.
Let’s say you borrow six dollars and pay seven in two weeks. That works out to an annual interest rate of over 370%. In other word, if you rotate a fast cash loan of $100 for an entire year, you’ll end up paying $470 total. By contrast, even the most hard-cased credit cards are in the range of 24-25% per year — a savings of $345.
Payday Loans Are Short Term Loans
Payday loan lenders can offer you from $100 to $1000 quickly with requirements that are easy to meet. You’ll be able to get approved within a few minutes and get the cash you need in your checking account the same day. So, even if you don’t have the best credit out there, you can still get the money that you need in an emergency.
But here is the question. Did you pay off the loan on the next payday? If not, then you don’t use it as a loan for urgent, short-term financial needs. Even though lenders may extend your loan for two one-month this will result in a substantial amount of penalty and interest charges, which will sum up at an uncontrollable amount.
Pay Off Your Payday Loan Debt
A lot of consumers using payday loans don’t have credit cards, or had very poor credit, or abused and misused their credit. If you are one of them, here are some ways out of the problem:
- Pay off the smallest debts. If you’re rolling multiple payday loans, pay them off first to free up the capital to tackle the larger ones. Talk to friends and family; ask them if they could extend you a small amount of money to pay off your cash advance loan.
- Bring in extra income. Pick up a part-time job or find a way to do some freelance work.
- Get a debt consolidation loan. If you have a checking account applies for a consolidation loan for paying off your payday loans. Even if the consolidation loan is at 22%, it’s still better than a fast cash loan.
- Create a budget. Go through three months worth of receipts to find out what you’re really spending and look for things to trim away.
All of these are standard advice from credit counseling services, which your bank probably directs you to one. If you are using their services consider working with reputable credit counselors that are nonprofit.
And once you’ve paid down your payday loan debt, change your spending habits. Try to spend no more than 90% of what you earn, and put the rest in an interest bearing account. This way compound interest works for you and not against you.