There are two clear viewpoints on payday loans. Many individuals are convinced that these short-term loans are the way to go because it helps them stay liquid when they are running a little short of cash. Plus, they can always turn to these cash-advances in an emergency such as the car breaking down, sudden house repairs, or medical bills. There are millions of such people across the United States who is approaching payday loan companies for these short-term cash advances.
Then there are the critics who believe payday loans are a debt trap as a large section of the population are not able to pay back on time. The statistics, though, tell a different story. These loans are not a problem for a large majority of people, as they always pay back on the due date. But having said this, there are always a few individuals who cannot repay the loan on payday, mainly because of financial mismanagement. But that happens with any type of loan, and not just payday.
However, we will still like to work with those who might face problems in repaying the loan in time. So here’s a guide that should help them.
Remember these tips before you apply for a payday loan. They are about more efficient money management and a few other points.
What You Must Remember Before Applying for a Payday Loan
1. Automate Your Debt Payment
There is very low rejection with payday loans because the lending agencies don’t look at the credit score. But the companies do want their money to be returned so that they can lend it again, and will thus look at your ability to repay. So you should have a stable income source. This means that, your application is going to be approved only if you are getting a salary every month, or can show another source that is giving you regular income. That is a basic necessity.
It will be much simpler if you just repay your debt with money received next month. Experts have always said that you should first save, and then spend with money you are left with. But there are some who would rather spend it first, and then look at repaying their financial dues. This will certainly cause trouble, if not today, then tomorrow.
Go to the bank and automate your debt repayment. This should be easy. Make sure that the money is deducted from your account and paid to a creditor on the due date once new funds are added to your account next month. All other payments can wait. Spend the balance money in your bank account after this.
Most payday lenders have the automate payments form with them. Ask for it, and fill it up. That way, you don’t even have to go to the bank to set up the automatic debit. Once done, cash will be debited from your account and paid to the lending agency automatically on the payday. This is the safest way to avoid missed payments. There are those who have cash, but forget to make the payment on time, like for instance, credit card payments. Automating payments will help them stay away from late fees.
2. Reduce Your Expenses
Try to stop making all unnecessary expenses when you are in debt. That is the last thing you should do. Make this a central objective of your life, at least for the time being, till you have repaid the debt entirely. This way, you will be able to manage money better. Cut down the expenses wherever possible.
You need a plan for this. Make a list of all your expenses for the month, and identify the ones you can avoid making. Remove the costly cable package or cell phone plan. Go for something simpler. Bring down the grocery budget for the month. Stop all those impulse purchases that we all do, and regret later. There will be always things you can do without. This approach will help you save money, so that you will have more in your bank account. Not just the short-term, this is a great strategy for the long-term as well. Perhaps you may not need a loan itself.
3. Increase Your Income
We all want to earn more money, but very few do what it takes to increase the income. We try to perform to the best of our abilities, in the hope that the pay will be hiked. But what if your employer doesn’t increase the pay?
Explore the possibilities of a second string of income. You can pay the debt off quickly with the extra money you make. There are many ways to earn money. It isn’t really as difficult as many people believe. For example, there will almost certainly be things you don’t need. Why not sell them on eBay or may be have a garage sale?
Take the payday loan for the immediate emergency, and once you have time, sell them off to make some extra cash so that you can pay off your debt. You can reduce the clutter at home as well, if you sell off things you don’t need.
Here are two more ways of making some extra bucks. Why not start a blog. Write about your hobby or a subject you know a lot about. Alternatively, you can take up a weekend job as well. That should add to your present income.
4. Make Small Payments
Payday loans are small-dollar cash advances. The amount you get is typically between $500 and $1500, which you need to pay back, plus interest, after receiving your salary or income on the next month. However, why not pay back a portion of the due amount even before that, if you have some extra cash? This way, the eventual burden will be reduced, and it will become much easier to repay the amount later.
Also, when you repay as soon as you have a little bit of cash, you won’t end up spending it on things you don’t need, or expenses that are not a priority at this time. Many payday lending businesses allow their debtors to make middle of the month small payments.
5. Prepayment Penalty
However, there are some payday loan companies, which will charge a penalty if you pay back before the amount is due. Always check this out before you take the loan.
There is hope even if you have taken the loan already with prepayment penalty. Calculate the penalty amount in money terms, and compare this to the interest amount you will save if you pay back earlier. It would make sense to pay back earlier if you find that it is working out well for you. Pay it back even if you are in the negative by a little amount, because of the lower burden on you later.
6. Bring Down the Rate of Interest
If possible negotiate with your payday lender and see whether you can bring down the interest rate. But make sure that the new lower interest rate is mentioned in the loan document. Sometimes, there are businesses that will agree because they want your account. They will agree when they find that you are serious about paying back the debt in time. It is always easier if you can pay back at a lower rate of interest.
7. Renegotiate Loan Terms
Try to renegotiate the loan terms, if you find that you are still unable to repay the loan at the end of the month for whatever reason. Show your commitment to meet your obligation. Many lenders will be impressed and will do their best to help you. May be the interest or fees can be brought down. There is no harm in asking.
The payday loan companies too want to have the money back so that they can lend it again. Inform at least a week in advance that you want to pay it back, but need some time. Most agencies will try to find a way.
8. Borrow Against Life Insurance
With payday loans, you will get the funds really quickly, often within 2 business days, or less, which is what you need in an emergency. It is transferred directly to your bank. There is time, when the funds are arranged, so seek other options. For example, you can borrow money against life insurance. There are other policies and savings as well that you can use to get funds for paying off the debt.
You will get less money later. However, it’s still a good deal because you are leaking money at this time, and need to find a way to stop that. The interest of life insurance is less than the commercial rates. So you save money when you borrow against it.
9. Borrow From Your 401(K)
If you have the 401(k) retirement plan at work, then you will be able to borrow up to 50% against it. Find out the amount you have in your 401(k) account. Take out a portion from this for repaying your debt. You don’t need to take out a lot of money, as payday loans are typically small-dollar loans.
10. Get Tax Deductions You Are Eligible For
Do you get all the eligible tax deductions? A lot of people miss out, just because they are unaware of the details. Seek the help of a tax professional if needed. you will save money that can be used for paying off the debt.