Payday loans are a source of massive financial burden for a lot of people. According to a recent study conducted by the US Government’s Consumer Financial Protection Bureau, close to 80% of the people in America who have taken on a payday loan sometime in the past, fail to pay back the amount after the 14 day term period of the loan expires, and as a result, find themselves in this unbreakable cycle of debt, without seeing any way to get themselves out of this misery.
However, the situation is not as hopeless as it may seem, and if you are one of these people, don’t worry, because there are things you can do to get yourself out of this mess and back on your feet financially, provided you take a systematic approach. Here’s how to proceed:
Step 1: Create a budget
If your debt is increasing like wildfire on a monthly basis, and you have no idea whatsoever where all your money is going, figuring that out is your first course of action. Go through bank drafts, credit card receipts, utility bills, everything.
Once you have that figured out, the next thing you need to do is cut back on your expenses. No more trips to the restaurant or traveling unnecessarily. If push comes to shove, be ready to put up your house on the market and look for some place with cheaper rent. Selling your car is another option in order to save the monthly car payments and insurance fees.
Step 2: Focus on building your credit score
This one takes some time, six months in the least. However, if you properly follow the suggestions in step one, it will ensure your debt doesn’t increase further in the meantime. Never borrow more than 20% of your credit limit and always pay it back on time.
Step 3: Consolidate your debts
Once you have a reputable credit score, you will have several options available to you for getting rid of that dreaded payday loan, along with all your other debts once and for all. One of the best methods of doing so is to take out a big loan for consolidating all your loans into a single one, effectively reducing the number of creditors you have to deal with, as well as the number of payments you have to make every month, to just one.
If loan consolidation is not for you, there are extra resources too, like applying for a secured credit card. The better your score, the more lucrative deals will be at your disposal.
Follow these steps and get your life back on track. And remember, in the future, to always stay far away from the clutches of payday lenders.