Getting too much debt can lock you into a payday loan cycle, which can be difficult to overcome. If you are faced with this situation, there are many ways you can work through your problems to get out of debt. Here are some suggestions you should check out.
Ultimate Guide to Breaking the Payday Loan Cycle
Payday loans give you an easy way to pay off your debts when you need cash quickly. However, if you’re not in control when you borrow, the debt can get out of hand and lead to a cycle of payday debt. This happens when you are forced to continue borrowing to pay off your existing debt. When you apply for a payday loan, your paycheck serves as collateral, so it doesn’t matter if you have bad credit. The lender has the power to withdraw from your bank account when you receive your next paycheck.
The lender charges a fee to process the amount, often 15-30% of the amount borrowed. This interest can accumulate and could attract an APR of over 400%. If you use your paycheck to pay for other expenses, you could delay paying off your payday loan, resulting in a payday loan vicious cycle. Here are some ideas you could use if you get stuck in a payday loan cycle.
Identify the underlying problem
When looking for a way out of the payday loan cycle, the first thing you should do is review your life for the underlying problem. By itself, the loan is not the major factor that you are in a financial crisis. The payday loan debt cycle is just one symptom of a problem you need to tackle. It is essential that you examine yourself to find out what prompts you to borrow this type of loan in the first place. Are you held back by other debt?
Is it difficult to budget and save money for emergencies and annual expenses? Or is the problem with an addiction that has kept you in a paycheck-to-paycheck life cycle? Once you have identified the main problems, you can seek professional help, as sometimes you do not have the skills to fix the problem on your own.
Track and identify your expenses
Before developing a plan to manage your payday loan cycle, it is important to understand your actual monthly expenses. This assessment will show you where you can find opportunities to change your spending and the amount of money you need to set aside to manage your annual and seasonal spending. You can track your expenses by keeping a small notebook with you, which you can use to record your expenses.
Also enter your receipts on a spreadsheet or use an app to manage your expenses on your mobile device. Whichever option you choose, you need to be honest with yourself. Build a plan with accurate information and you will break the payday loan cycle.
Create a personal budget
Another way to understand how to manage payday loan debt is to create a realistic personal budget. When you take the first two steps, a budget will help you better manage your seasonal expenses. Through this, you can plan how to pay off your payday loan debts. For effective budgeting, consider these simple steps:
- Identify your income and expenses. Know how much you are making and where the money is going.
- Separate needs and wants. Highlight the items you can do without and also list all the necessities.
- Design your budget. Balance the budget to accommodate whatever you want to pay for.
- Implement your plan. Match the expenses when you receive income. Decide how you will use your salary.
- Highlight seasonal expenses, like school expenses and memberships. Set aside funds for these expenses to make sure you don’t go into debt to meet them.
Pay off your payday loans
The eventual solution on how to end the payday loan cycle is to pay off your payday loans. It’s important to make tough, short-term decisions that will help you settle your debt. Once the debt is paid off, you can review your spending and budget to maintain your free status. Here are the steps you can take to successfully negotiate your payday loan debt repayment.
- Calculate how much you can afford to pay for payday loans each month. Check how much you have left after paying for your expenses.
- Pay each payday loan company a share of the available funds each month to demonstrate that you are prepared to honor your agreement.
- Before you speak to company representatives, place a chargeback on pre-authorized debits to prevent them from cashing out and leaving you with no money for other expenses.
- Before the loan is due, tell companies that you can’t pay as agreed, so ask to speak with someone who can help you get a payment plan.
- Explain to representatives that you intend to get out of debt.
- Share the details of your current payday loans and let them know that you have reviewed your budget and determined that you can only afford to pay a certain amount.
- Don’t take out a new payday loan as it could put you in further debt, so maintain a firm position to settle your current loan first.
- Once you’ve made a deal, keep your commitment to pay off all debts.
While this is only recommended if you can find a lender willing to give you lower interest, it can be an ideal way to get rid of your payday loan debt. You borrow the cheapest loan and use the money to pay off the outstanding debt. After settling the payday loans, you can now focus on paying off the loan you requested to get out of debt.
Debt can impact your mental and financial well-being. It’s important to make sure you get your situation right as soon as possible to break the payday loan cycle. After you pay off your debt, you will feel better overall. Learn new financial skills, like budgeting, to make sure you don’t go into debt again in the future.
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