A payday loan can save you when you are in a tight economic spot. It will bring you a lot of relief to be able to make that car payment or house payment. However, many people find themselves unable to pay back all or even part of these loans once their next paycheck comes in. When people cannot afford to payback these loans and have to keep taking out new ones, it is known as the payday loan cycle.
The Payday Loan Cycle
This phenomenon is becoming more common with every passing day. Since the economic crash in 2008, things may have improved for stock traders and the real estate market but not for the average citizen. Wages have remained pretty steady while the price of everything has gone up considerably.
Once someone takes a payday loan, the chance of falling into the vicious cycle of loans becomes greater. People take new loans to pay the old ones and tack on more fees and interest. Eventually, the outstanding debt becomes immense and the interest rates are beyond those of credit cards.
How to Break the Payday Loan Cycle
If you think that you are in this situation, consider taking some or all of the following steps in order to break free from the payday loan cycle.
Organize Your Bills
Put all your bills in one place and keep them there. As new bills come in, add them to that collection of bills. An even better solution would involve a file cabinet devoted to just bills. If you do not have such a cabinet, though, any pile of bills will do. Having them all in one place is an improvement over just vaguely trying to keep track of it all in your head.
Set a Budget
Begin your budget with the things that absolutely must be paid. This would include rent, electricity and other necessities. These get paid automatically before you spend money on anything else. Then come the luxuries, such as the money you spend on entertainment.
Food is not a luxury but you should have a clear limit on how much you will spend. Eating out is only an option when all the other bills are paid.
Make More Money
You may not even have enough to cover necessities. In that case, you will need to find an extra job or some other way of bringing in more money. If jobs are not available in your area, look for ways to earn money online.
Service Payday Loan Debts First
In almost every case, the real interest rate of payday loans is much higher than even that of the worst credit card interest rate. You should simply make minimum payments on all your other debts and spend all your extra money on reducing and eliminating your payday loan debt.
Being organized is the key to eliminating any debt. These steps require discipline. You must not be afraid to take every spare cent and put it into your payday loan debt. In the long run, the savings on interest will make these sacrifices worth it.