A payday loan serves an important purpose in the economy: Helping people who are in financial trouble. Indeed, it is a great idea, in theory, to save and maintain an emergency fund, but sometimes life does not allow that to happen. And it can be expensive. So, as a result, millions turn to payday loans, which albeit is a costly decision, but you do not have to endure a horror story if you are proactive.
Here are nine steps on how to pay off payday loans fully:
1. Understand Terms and Conditions
Before you sign on the dotted line, it is always a good idea to carefully peruse the terms and conditions of your payday loan contract. While it might be tedious and intense (who has time to read through a dozen pages of fine print?), you need to protect yourself somehow and ensure you know how much you will really owe once the agreement matures.
If you want to learn how to pay off payday loans, you must first understand the terms of agreement of your payday loan and calculate your total repayment.
2. Postpone Major Purchases for a Month
Until your payday loan is repaid, you need to postpone any major purchases for at least a month. So, do you plan to buy a big-screen television? Skip. What about a $5,000 Cartier watch? Skip. Going to Venice for a week? Skip.
Remember, a payday loan can be an expensive expenditure because of the high short-term interest rates. Therefore, to ensure it doesn’t get snowballed and tossed onto your debt pile, you need to get it paid as quickly as possible.
3. Make a Two-Week Budget
This ties into the previous point, but it is still important to explain.
Once you agree to take out a payday loan, it would be prudent to come up with a budget that spans two to four weeks. You must highlight how much you plan to spend, where it will go, and what you can cut back on. So, for instance, if your grocery bill is usually $100 a week, then try to cut it down to $80. Or, if you have a limit of two movie trips a month, then cut it in half.
It may not seem like much, but if you follow the pennies then the dollars will follow.
4. Ask About an Extended Payment Plan (EPP)
Some payday loan establishments do offer their customers an extended payment plan, or EPP. Others, however, do not. So, what exactly is an EPP?
An extended payment plan allows borrowers to extend the repayment period by several weeks without penalties or additional rate charges. This prevents you from getting into a panic and making unwise decisions that will do more harm to your pocketbook than good. Ask around different providers about their payday loan requirements and guidelines. See what the restrictions are. And think about utilizing it when the going gets tough.
5. Limit How Much You Borrow and Spend
If you have an excellent credit rating and a superb borrowing history, then payday loan companies will offer you thousands of dollars more than you need. It might be tempting to take advantage of this, but this is the worst thing you could do. What if you are enticed to spend it all? You’re stuck!
As you apply for a payday loan, you should limit how much you borrow. If you need $500, then keep it at $500 – nothing more. Also, if you do have a $500 loan, then try only to spend $400 of it, or anything less than $500. Again, it goes a long way!
6. Request Help from Friends and Family
If you feel that your payday loan debt is getting out of hand and is causing a great deal of harm to you and your household, then why not turn to your support network? Sure, not everyone has $500 laying around, but even $100 or $200 can help you pay off this debt.
Many friends will also not charge you any interest, so this can help you a great deal. Just one piece of advice: Be sure to pay this off! Your friend or family member should be the first person you repay once your payday loan is wiped out.
7. Create an Emergency Fund
Your automobile broke down. Your refrigerator stopped working. Your son needs emergency dental work. These are unwanted and unexpected expenses that can leave you stressed and tapped out. But one of the best measures to employ to prevent you from feeling the pinch is adopting an emergency fund.
8. Find Cheaper Credit Alternatives
Payday loans can be expensive because it is also expensive for these lenders to offer short-term loans. That said, there are cheaper credit alternatives out there, such as a line of credit, a low-rate credit card, or a home equity line of credit (HELOC). These can be inexpensive alternatives to a two-week $500 loan.
9. Establish a Budget – And Stick to It
Yes, all the personal finance experts say the same thing: Establish a budget. And, most importantly, stick to your monthly budget. It is easier said than done, especially when you have unexpected costs, variable expenses, or a paucity of time. The reason why so many experts recommend it is because a budget can allow you to keep track of your dough. Without a budget, you have no clue where your money is going, which is disrespecting your hard work and sacrifice.
Life is tough, particularly when barriers are erected in front of you. Oftentimes, you take two steps forward and one step back, which is extremely frustrating. Anytime you experience a victory, it is snatched away from you from this thing called life. A payday loan can serve as a lifeline, but it can also be a noose if you’re not careful and you’re not taking the appropriate measures to repay and save.