How To Permanently Get Out Of A Payday Loan Cycle

Posted by: KHTS Articles in News Articles September 23, 2021 - 9:37 am 0 1,486 Views

Taking too much debt can lock you in a payday loan cycle, which can be difficult to overcome. If you’re facing this situation, there are many ways you can solve your problems to become debt-free. Here are suggestions you should check out.

Ultimate Guide to Breaking the Payday Loan Cycle

Payday loans offer you an easy way to settle your debts when you need quick cash. However, if you don’t exercise control when borrowing, the debt can get out of hand and lead you to a payday loan cycle of debt. This happens when you’re forced to keep borrowing to repay your existing debt. When you apply for a payday loan, your paycheck acts as security, so it does not matter whether you have bad credit. The lender has the authority to withdraw from your bank account when you receive your next paycheck.

The lender charges a fee to process the amount, often 15% to 30% of the amount borrowed. This interest can pile up and could attract an APR of more than 400%. If you use your paycheck to settle other expenses, you might delay repaying your payday loan, leading to a payday loan vicious cycle. Here are ideas you could use if you’re stuck in a payday loan cycle.

Identify the Underlying Problem

When looking for how to get out of the payday loan cycle, the first thing is to review your life for the underlying issue. By itself, the loan is not the major factor you’re in a financial crisis. The payday lending cycle of debt is just a symptom of a problem you need to fix. It’s critical that you examine yourself to know what is pushing you into borrowing this type of loan in the first place. Are you held back by other debts?

Is it difficult to budget and save cash for emergencies and annual expenses? Or is the problem because of an addiction that has kept you in a cycle of living paycheck to paycheck? Once you have identified the core issues, you can seek professional help as sometimes you may not have the skills to address the problem yourself.

Track and Identify Your Expenses

Before you lay out a plan to address your payday loan cycle, it’s important to understand your actual monthly expenses. This evaluation will show you where you can find opportunities to modify your expenses and the amount of money you need to set aside to manage your annual and seasonal expenses. You can track your spendings by keeping a small notebook with you, which you can use to record your spending.

Also, enter your receipts onto a spreadsheet, or use an app to manage your expenses on your mobile device. Whatever option you choose, you need to be honest with yourself. Build a plan with accurate information, and you will break the payday loan cycle.

Create a Personal Budget

Another way you can understand how to deal with payday loan debt is by creating a realistic personal budget. When you accomplish the first two steps, a budget will help you manage your seasonal expenses better. Through this, you can plan on how to pay off your payday loan debts. For effective budgeting, consider these simple steps:

Identify your income and expenses. Know how much you earn and where the money goes.
Separate needs and wants. Highlight the items you can do without, and also list all necessities.
Design your budget. Balance the budget to accommodate everything you want to pay for.
Implement your plan. Match spending when you receive income. Decide what you’ll use your paycheck for.
Highlight seasonal expenses, like school expenses and memberships. Set funds aside for these expenses to ensure you don’t go into debt to address them.

Pay Off Your Payday Loans

The eventual solution on how to end the payday loan cycle is to pay off your payday loans. It’s important to make tough decisions in the short term that will help you resolve your debts. Once you repay the debt, you can revisit your expenses and budget to maintain your free status. Here are steps you can use to successfully negotiate debt repayment for your payday loans.

Calculate the amount you can afford to pay towards the payday loans each month. Check what you’re left with after settling your expenses.
Pay to each payday loan company a share of the funds available each month to demonstrate you’re willing to honor your agreement.
Before you speak with the company’s representatives, place stop payments on pre-authorized debits to prevent them from cashing in and leaving you with no money for other expenses.
Before the loan is due, alert the companies you’re unable to pay as agreed, so ask to discuss with someone who can help you get a payment plan.
Explain to the representatives that it’s your intention to get out of debt.
Share details about your outstanding payday loans and tell them you reviewed your budget and determined you can only afford to pay a certain amount.
Don’t take a new payday loan as this could plunge you deeper into debt, so maintain a firm position first to settle your current loan.
Once you reach an agreement, maintain your commitment to pay off all debts.

Debt Consolidation

While this is only recommended if you can find a lender willing to give you cheaper interest, it can be a perfect way to get out of payday loan debt. You borrow the cheaper loan and use the money to repay outstanding debt. After settling the payday loans, you can now focus on repaying the loan you applied to get out of debt.

Conclusion

Debt can impact your mental and financial well-being. It’s important to ensure you address your situation as soon as possible to break the payday loan cycle. Once you repay your debts, you will feel better overall. Learn new money skills like budgeting to ensure you don’t end up in debt again in the future.