Thursday 19th January 2017
Payday loans are becoming increasingly popular in the UK. They are high interest loans that are used as a short term fix to tide you over for cash until pay day. Many consumer groups warn against taking these types of loans out unless absolutely necessary because of the high interest rates and high charges if payments are missed. The attraction to these types of loans are that they are easy and quick to acquire. The money can be put into your bank account within 5 minutes and to apply for the loan usually takes no more than 10 minutes. So without even moving you can have these extra funds in your bank account.
Interest rates are the biggest negative about payday loans. For each loan there is always a fee charged which is very high for the length of time that you are borrowing. Lenders typically charge £25 interest fees for every £100 that is borrowed and have large missed payment fees that soon accumulate if a payment is missed, usually charging between £15-25 a day. It is easy to see how people can get in to extremely serious money problems from taking out pay day loans.
The main danger of payday loans is that you can easily find yourself in a cycle of debt very quickly. Most pay day loan companies will lend money whether you have good or bad credit and this is another big reason why they are so popular. As lenders with bad credit can’t source loans from elsewhere for some people this can be their only option. This can lead to them falling into the trap and using them as long term loans, and with the interest and the loan fees high it can put you in serious debt that can’t be paid back by many.
If you have fallen in to the payday loan trap and are worrying about this heavy debt on your shoulders there are a few things that you should try to help pay the debt back. First of all cut all non-essential purchases to a minimum, which is easier said than done, but will help you out greatly.
It is important that you have a good understanding of what you are spending and what money is coming into your account every monthly. This can help you see how you could be saving money. You need to look at how much you are spending on rent or mortgage, utilities, petrol if you drive and essential food. Any extra spending such as money for socialising, and broadband should be cut out or reduced until you are back on track with your finances. Put the saved money aside to pay off some of your debt. A great way to track this is to use an income and expenditure form listing your essential outgoings.There could be the possibility of an an Interest Free Cash Transfer on to a credit card. Some credit card companies offer these incentives to new customers in a similar way they offer Balance Transfers. Here you would apply for a new credit card that offers Cash Transfer. Once accepted you draw the funds in to your bank account and use this to pay off the Payday Loan or loans you have accumulated. There are generally fees of around 3% of the total amount transferred so bear this in mind when considering this option. Have a shop around for the best deals. Make sure you use the funds to pay off these loans and other interest bearing debts up to your credit limit. There will be a great saving on the original Payday loan interest and significantly reduced monthly payments. However, if possible try to keep the monthly payments higher in order to pay the debt off sooner.
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