If you have been tempted by a payday loan, you were probably looking at the monthly interest rate, which may have seemed quite low. However, if you did not pay back the loan within one month, you will have had to refinance it, so you will have borrowed the same sum again plus the interest you didn’t pay back on the first month. In this way, your loan became substantially bigger as each month passed. A loan for a relatively small amount, such as £250, can soon swell to as much as £6012 in just ten months with a fairly standard APR of 4670 per cent.
If you have found yourself in a payday loan spiral, don’t panic. You are not alone, but it is time to take action. No debt problem is insurmountable. There are a number of steps that can be taken which will help you to get back in control of both your spending and borrowing.
The very first thing to do is to look carefully at your outgoings. If you are spending more than you are earning, then you have a problem and must find a way to reduce your outgoings. The best way to do this is to make a comprehensive list of everything you have to pay for each month and how much each costs. Make sure that you also add the cost of annual holidays, weekly food shop, daily coffees as well as birthday and Christmas presents. If you don’t, then the whole exercise becomes meaningless. You can find some helpful tips on the MoneySavingExpert website by searching for budget planners.
Once you have an overall picture of how much you spend, see if you can find ways to reduce your spending. Is it possible to spend less on going out, on presents or on clothes, for example?
How Much Are You Paying in Interest?
Next it is time to look carefully at the debts you have and how much you are paying in interest. List all of them, the amount left to pay and the APR on each one. Payday loans are non-priority debts. This means that you should only pay them back after you have paid for essentials such as the rent or mortgage, electricity, food and other household essentials. If you do not have enough left to cover the cost of your payday loan repayments, you can stop the payments being taken from your bank account. Do this by contacting your bank.
The next step is to find a way of paying off the payday loans so that you are not charged any more interest. One way of doing this is to take out a debt consolidation loan. This is a useful and effective way of dealing with debt. If you have a number of debts at varying rates of interest, you might find that you can save a considerable amount of money by borrowing just enough to pay them all off. Then instead of having to pay back a number of loans, you only have to pay back one and could save yourself a substantial amount of money in interest payments.
Debt consolidation loans such as these ones available from Evolution Money, are sometimes known as bad credit loans because they are typically used by people who have fallen behind with payments on pre-existing debts and so have a bad credit rating. Companies offering these types of loans will probably examine your credit record but are much more likely to base their decision on whether or not they think you are able to repay the loan. You will need to give them a detailed account of your outgoings and income, which is why it makes good sense to prepare your budget before you apply.
So if you are stuck in a payday loan spiral, continually borrowing from payday loan companies in order to pay back previous payday loans, do not despair. There are ways out of the cycle, and it is possible to take control of your finances, and your life, once again.