It's a common cycle: you're hit with unexpected bills you can't pay, so you borrow from your next paycheck by taking out a payday loan. But by the time you're paid and pay back the loan plus interest and fees, your paycheck is no longer enough to cover your expenses, so you take out another payday loan, and then another. This cycle can be very difficult to break out of, while also costing you a ton of money—even the fees alone cost an average of $520 per year. Things get even more dire when you take out payday loans from multiple lenders.
Your situation is far from hopeless, however. To get out from under this cycle, implement the following five tips:
Sign Up for Payday Loan Consolidation
When you are struggling under the weight of large payday loans or multiple payday loans, consolidation can be a great option. Your payday debt will be restructured into one new loan, which typically has much lower interest and easier payment terms than a payday loan. Making one manageable payment each month can free up more of your paycheck for necessities while also breaking the payday loan cycle. Contact a company like Real PDL Help for more information.
Increase Your Income
Oftentimes, people don't get into a payday loan cycle because they overspend, but rather because they don't make enough money to both cover their expenses and set aside extra cash for emergencies. Instead of being complacent about your income, look for ways to increase it every month, starting now.
This may mean asking your boss for a raise if you've been in your position a long time and have taken on new responsibilities, switching to a better-paying company, or starting a side business like freelance writing or dog walking. Your financial situation will be much more manageable and less stressful once you give your take-home pay a boost.
Build Emergency Savings
Once you consolidate your payday loans and begin increasing your income, it's time to work on building an emergency fund. While most experts agree that it's ideal to have three to six months' worth of living expenses set aside in an emergency fund, this can be a daunting amount of money when you're first starting to save. Instead, set a more easily attainable goal, such as setting aside money each week until you have $500 in savings. Then, increase your goal to $1000, and so on until you gradually build to the three-six months' rule.
If your car breaks down or you have an unexpected vet bill, take the money from your emergency fund and then begin again. Don't get down on yourself about this, since this what the money is for, and having it there will help prevent you from taking out more payday loans.
Sell Off Unneeded Assets
To turbo charge your debt repayment and savings, you may want to sell off unwanted assets. That diamond bracelet you never wear, the extra television, and even small items like DVDs and books can bring in extra money. If you drive a newer car with an expensive monthly payment, just trading it in for a reliable older car can save you hundreds of dollars each month. Each time you sell something you don't need and make an extra payment on your payday loan consolidation bill or add a bit extra to savings, you will feel a jolt of motivation and pride.
Create (and Stick to) a Budget
Finally, to prevent this problem from occurring again in the future it's important to know exactly where your money is going each month and make savvy spending choices. Free budgeting software like Mint.com can be very helpful in keeping your budget on track.
Getting caught up in a cycle of frequent payday loans is stressful and bad for your finances, but you can take control of your situation. By following these steps you will soon regain financial health.