In times of financial stress, many individuals in this country will turn to the payday loan. It is a quick solution that can provide anywhere from a 100 dollars to upwards of 1500 dollars. Even better, these loans often fund the very next day and some will even pay out on the first day.
While these loans sound like a dream come true, they come with some issues. Ignore the issues and you could very well find yourself in a worse financial position after receiving the loan. If, however, you are responsible with the loan and do some planning beforehand, you can have a good experience. Take a look at our guide on successfully navigating a payday loan.
Step One: Assess Your Ability To Repay The Loan
Payday loan lenders only take a crude look at your ability to repay the loan. Only you can be the true judge of whether you can make the payment or not. The last thing that you want to do is take on a payday loan without making this consideration. Doing so could send you into a payday loan debt cycle. To make sure that you can afford your loan, review your finances.
Tally Your Income
The very first thing that you need to do is add up both your regular income and your reasonable potential income. Calculate your pay over the next two weeks and record it. Then, add up how much extra money you could reasonably make if you were to take on some overtime at work, pick up an extra job or maybe sell something around the house.
Add Up Your Expenses
Now, add up all of your expenses. If you have a budget, you should already have this information handy. If not, write down all expenses for the next few weeks including a budget for gas, food and entertainment.
See If You Have A Surplus
Finally, compare your income to your expenses. If you have a surplus, is it enough to pay back the payday loan. If not, you need to take on the extra work that you calculated or look at your budget and make some cuts to free up enough money. If you can not free up enough cash to pay off the loan, do not take the loan.
Step Two: Do Your Research
Next, you need to do your research not only about your potential loan, but about similar ones and other options.
Review Your Loan Details
First, if you have already received a payday loan offer, read all of the details to make sure that there are no surprises. Note the interest rate and/or fees involved with the loan. Also take note of when the loan is to be paid back and if you will be making the payment or if it will be automatically drafted from your account.
Research Similar Loans
Once you have your loan offer, do some research to see what most people are really paying for payday loans these days. Forums and websites like Reddit are good source of information.
Look Into Other Options
Finally, look into other loan options. Even if you are in need of a bad credit loan, you may have more choices than you think. An installment loan, for example can give you more money with smaller payment loans than that one payment payday loan would have. The interest rate would likely be much more reasonable as well.
Step Three: Create Your Payment Plan
Now it is time to put it all together. If you believe that you have the money to pay back a payday loan and that it is the best option, after reviewing other products, it is time to make a plan.
Add The Payment To Your Budget
First, add the loan repayment, usually one single payment to your upcoming budget. If things are balanced, great. If not, add the extra income that you already calculated and/or make some budget cuts. Have the loan payment in your budget before you accept any money.
Make Your Loan Payment A Priority
Your loan is now part of your budget, but things have a way of changing. If your expenses or income changes, you need to make it a point to prioritize your loan. You need to make your payment to avoid the costly problem of having to roll over your payday loan. Cut other expenses, negotiate with creditors, borrow from friends or family, whatever it take to make your loan payment.
Make Your Payment
Most payday loans will be automatically withdrawn. If this is the case, make sure that the payment clears on the payment date. If you will be manually be making your payment, set a reminder so that you do not miss it.
Step Four: Work To Prevent Future Payday Loans
While payday loans can provide temporary financial relief, they are not a long term solution to your money problems. To get your finances in order, you need to address the underlying issues. Here are some steps to take.
Start An Emergency Fund
If you had an emergency fund, you would not be in the situation of needing an expensive payday loan. Make starting an emergency fund a priority.
You might be under the misconception that you can not save money, but you really can. Almost every budget and every income level has room for savings. If you can not find it, the problem might be that you are living above your means or are unwilling to make sacrifices. Write a budget and make some cuts to find the money to save.
Your emergency savings should have enough money to cover roughly 6 months of bills. This is an intimidating amount, but it is attainable over time.
Improve Your Financial Literacy
If managing your money is a mystery to you, education is the key to correct this. You should make it a point to educate yourself on everything including managing your budget, increasing your income and investing for retirement.
No, you will not become a financial guru overnight, but if you simply read about finances for 10 minutes a day, you will soon become a master of your own money.