What is a Pay Day Loan?
Payday loans, also known as a cash advances, can be very handy, especially during times of emergency when you do not have the cash to pay for something. In simple terms, a pay day loan is a type of short-term loan where one can borrow a relatively small amount of money. It is then paid off usually on the nearest pay day of the borrower. This type of loan usually does not have interest charged on it. Instead, a fixed amount called the service charge is added to the loan, depending on the amount, the length of the loan, and the creditor that provided the pay day loan.
It comes in handy in situations where a particular employee needs cash and he or she is several days or even weeks away from pay day. For example, you urgently need cash to get your leaking roof fixed, and the weather news says it will be rainy in a few days, but the next pay day is still two weeks away. The easiest way to get money may be to get a pay day loan and pay it off when you get your salary in a few weeks.
How is it Paid?
Once a loan is approved, a borrower usually writes a post-dated check, bearing the promised date of payment, which is usually the employee’s pay day (hence the name). On the agreed payment day, the borrower can either pay the amount due and redeem the post dated check, or simply let the creditor credit the check given previously.
If the person still does not have enough money to pay, the debt can be extended to the next pay day, or several times, but with accompanying added service fees (in lieu of interest) each time it is extended.
A Vicious Cycle
Given this convenient arrangement, it understandably can be abused easily. If you often get cash advances, you’ve probably experienced having almost no salary to take home once pay day comes, because most of your salary has to be used to pay debts. Since you have little money left, again, you get a salary loan again; before long, you’re stuck in a vicious borrow-pay-borrow cycle.
Getting Out of Pay Day Loan Debts
Nobody wants to get stuck in a seemingly perpetual cycle of debt, no matter what type of debt it may be. The good news is, compared to other types of debts, a pay day loan is a lot easier to get rid of. Here are some suggestions.
Calculate How Much Debt to Pay
First things first: you must know the exact amount that you have to pay. Gather every receipt or document that you have that indicates your debt. If you have previous and unpaid salary loans, you might as well include them. too.
Make sure you add up every debt you have and that the sum you come up with is accurate. If you have any doubts about the result, add everything up again, just to make sure.
Option 1: Consolidate your Debt
If you have accumulated a significant amount of debt due to your cash advances, and you think it will be very difficult to pay it off with your salary, then it may be a good option to consolidate your debts. Debt consolidation works by borrowing the exact amount of money that you need to pay for your debt.
In this option, you can pay off your debt right away, with lower penalty fees added to your debt. Consolidating your debt may cause you to pay some interest, depending on the terms you and the debt consolidation company agree upon. The amount of debt that you have to pay, as well as the duration within which you’ll be paying it are just some of the basic details you’ll be ironing out with the creditor.
Remember that you should comply with the payment terms in a cosolidation arrangement. Otherwise, you may be charged additional fees if you delay or miss any payments.
Option 2: Charge it to your Credit Card
If you own a credit card, then you might as well put it into good use. Pay all your cash advance debts using your credit card. This one is also similar to debt consolidation, except more convenient because there is no third party involved.
A good time to use your credit card to pay for your debt is when your credit card company is offering very low or no interest rates at all. This will save you a significant amount of money, especially if you will be paying off a huge debt.
When charging your debt to your credit card, make sure you make payments on time because you may lose the ‘no interest’ privilege (if there is one), or worse, get charged higher interest rates or surcharges for paying late.
Option 3: Pay it by Yourself
Many people still prefer paying off their debts by themselves, without having to borrow money to pay off another debt. This is quite feasible, but it requires discipline. Unlike other options where you get charged fees, paying it off on your own will not cost you anything extra. It may take a while to completely be free from pay loans, but you’ll be able to avoid adding yet another creditor into the equation. Here are the things that you should do if you decide to use of this method:
- Spend wisely and be reasonably frugal – As much as possible, spend your hard earned money mainly on essential things like food, clothing, and utility bills. Avoid unnecessary shopping, eating at fancy restaurants, or even watching movies, at least until you’ve paid off your debt completely.
- Make a Budget – Making a budget can prevent you from overspending or going beyond your budget. You already know how much your debt is, so allot a portion of your salary to pay off your debt. When you are tempted to buy something, classify it first as either a “want” or a “need”. A “want” is eating at a fancy restaurant or buying yet another pair of designer shoes. A “need” is your lunch, your water bill, or your son’s school tuition. Prioritize the “needs” of course, and think of “wants” only when you already have the necessary resources for such luxuries.
- Try to Find Added Sources of Income – Sometimes your salary is not enough to make the payments for everything you need, so find simple ways to increase the money that you make. Hold a garage sale, turn a hobby into a money-making activity, or take on a part time job. Earning extra will help you comply with your standing obligations faster, avoiding penalties and surcharges.
Avoid the Vice
As much as possible, avoid getting pay day loans. This loan is primarily for emergency situations where you absolutely need money right away. Treat this loan as a last resort. Try to borrow money from your friends or relatives first and you won’t get charged service fees or interest.
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