Avoiding The Payday Loan Trap

Avoiding the​ Payday Loan Trap
When budgets are tight and you're short of​ cash towards the​ end of​ the​ month,​ a​ payday loan can seem like the​ ideal answer,​ giving you​ enough money to​ see you​ through until you​ receive your next wage .​
Unfortunately,​ this can be too simplistic a​ view,​ and using payday loan facilities to​ paper over the​ cracks of​ a​ bad financial situation can make matters even worse,​ given the​ relatively high fees involved in​ short term,​ small dollar loans.
The fact that a​ typical payday loan will cost around 25% of​ the​ amount borrowed in​ fees,​ repayable within a​ period of​ a​ month or​ so of​ receiving the​ advance,​ means that in​ APR terms the​ cost can be astronomical even though the​ actual dollar amount may seem small .​
This means that potential borrowers need to​ think carefully about whether they really need a​ loan,​ as​ there are alternatives that may be a​ better option.
The major danger with payday loans is​ the​ temptation to​ use them to​ cover bills and allow a​ certain amount of​ living beyond your means .​
It's easy to​ fall into the​ trap of​ having to​ take out a​ new loan every month to​ make ends meet,​ all the​ time paying the​ high fees .​
Once in​ the​ trap,​ it's very difficult to​ escape without a​ dramatic change in​ circumstances .​
So what are the​ alternatives?
If the​ main reason you​ need a​ loan is​ to​ cover a​ credit card payment or​ other bill,​ you​ may be able to​ contact your creditor and arrange a​ repayment program that gives you​ enough breathing space to​ avoid the​ need for a​ loan .​
Even if​ you​ can't come to​ an​ arrangement,​ the​ bald fact is​ that delaying a​ payment will mean being charged a​ late fee only once,​ rather than the​ monthly fees incurred by the​ payday loan trap .​
Of course,​ it's rarely advisable to​ break a​ credit agreement,​ and your credit rating will certainly be damaged,​ but as​ a​ last resort it's an​ option to​ consider.
A more financially responsible way out of​ the​ trap is​ to​ look for a​ credit union in​ your area .​
These non-profit organisations will advance funds at​ an​ extremely low rate,​ and also offer advice and help to​ get your finances back in​ shape .​
In the​ longer term,​ they can also offer flexible savings plans to​ help you​ build up a​ 'rainy day' fund for the​ future.
You can also make use of​ a​ credit card cash advance facility,​ which although expensive,​ allows you​ to​ spread the​ cost over a​ number of​ months and will end up being less costly than a​ few months of​ payday fees .​
Debt consolidation or​ small consumer loans can be a​ cheaper alternative,​ but are best used as​ part of​ a​ complete overhaul of​ your finances and budgeting.
So are payday loans altogether bad news? Not entirely .​
In a​ genuine financial emergency they can be a​ lifeline,​ and so long as​ they're not renewed then they can actually be less expensive overall than taking out credit at​ a​ cheaper rate but over a​ longer period .​
Just make sure you​ don't fall into the​ trap of​ having to​ take out a​ new loan every month to​ cover basic living expenses.

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