Don't Take Out A Payday Loan For Anything Other Than An Emergency

Warning: Late repayment can cause you serious money problems

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Payday loans can be an excellent path to take to help you out financially if you are in an extreme emergency. However, it should not be something that you use without considerable thought. Payday loans are dangerous and can easily bring you into a harming financial situation. Emergencies should only be something such as a higher than expected bill, if you have had time off sick, if your car breaks down, or some other extremely dire situation. Things that do not count as emergencies include last minute purchases that you want, “once-in-a-lifetime” opportunities that seem to offer a good deal. Anything else that you feel you may need but cannot currently afford does not count as an emergency.

Even in emergencies, first check out other financial resources before resorting to a payday loan. The best alternative is to borrow money from a close family member or friend. Usually, they will not require any interest, as that is often where most of the money ends up. Also, they will be more understanding when it comes to paying back the loan. If you are truly in a state of financial emergency, they will understand and work with your budget to come up with a suitable time frame to pay it back. 

Of course, not everyone is lucky to have people close to them who can lend their money at such short notice. If this is the case, look for companies that offer short-term instalment loans instead of single repayment payday loans. Short-term instalment loans allow for you to have a more realistic payback time. Usually, short-term loans will need to be paid back in around three to twelve months. This is much better than the one-month payback period of a single instalment payday loan. Short-term loans allow you to budget accurately. You will be able to repay the amount monthly instead of having to worry about paying it all back at once.

Below are just a few reasons why you should avoid payday loans unless it is an extreme emergency.

Cycle of Debt

Payday loans can keep you in a cycle of debt. This means that instead of paying off the loan from 'income' you need to take another loan to pay of the first, then a 3rd to pay the second and so on. In essence the debt just gets bigger and bigger.

Because of this many people who take out one payday loan will end up with many more by the end of the year. This is because payday loans are offered in small quantities, making you feel comfortable to borrow what you may think you can pay back immediately.

Financial Strain

It is also a financial strain for you because you get into the mindset that you can always take out another payday loan. Even if you do not consciously want to spend more money than you can afford, you may be tempted to buy something that you do not have. If you are struggling with this, make sure that you have a monthly budget. Make sure to include a small amount of money that you will put away into savings. You should always aim to have enough savings to live off of for around two months, or twice your monthly wage. This will ensure that no matter what type of financial emergency you are in, you will be able to have a fallback period to live off of while you get back on your feet.

Lack of Budget

Payday loans can force you to lose sight of your budget. You will always be working to pay off the previous month’s debt that you will not be able to budget for the future. Traditional single instalment payday loans can be hard because they force you to pay it back on the next payday. Of course, most of the time this is impossible, because your next salary is meant to help you survive for the upcoming month, not to pay back what you spent the month before. The best thing to do is start a budget immediately.

After you have a good amount of savings that will help you survive in case of an emergency, you can start saving money for things that you want. Also, check to see if there are other resources that you can use to get what you want. For example, if the item you want is clothes, furniture, or something small, check your local secondhand store to see if you can purchase it there. If it is an electronic or something a little more expensive, check out to see if there are coupons or deals that you can use.

It is also important to remember that what may feel like a crisis at the time is something that you can wait to buy. For example, if it is a vacation that you think you and your family should have or deserve, but you currently cannot afford it, then it does not count as an emergency. Or if it is something you want to purchase because you want the newest upgrade, this is not an emergency. If you need a phone or a car, examples of necessities for communication and travel, then find one that you can afford.

By utilizing a little self-control and good budgeting skills, you will be on an excellent financial path that does not require you to take out loans. Remember that once you start the process of taking out loans, it is often hard to control yourself afterwards. The better thing is to not start and faithfully save up enough money until you can afford the things that you want.