Even though small payday loans are meant to be taken out to help out in emergencies and for unexpected bills, MoneyAware tell us that forty percent of borrowers use payday loans to pay for petrol and food. As a result of the squeeze on British wages for the last ten years, people have got less and less to spend on the things we need to be able to get by in life.
When used properly, small payday loans can get you and your family out of a tight financial spot. For many borrowers though, the problem with payday loans is that, instead of multiple repayments being taken over the course of a few months, the entire amount you borrowed plus interest is repaid in one lump sum. That can be a lot of money to find all at once.
Do you feel that you are in danger of falling into a spiral of debt? What that means you have to take out one payday loan out to repay another payday loan.
Well, this may buy you some time but what you’re really doing is storing up some huge problems for yourself in the future. In this article, 786 Loans looks at a few of the alternatives, including:
- you might be able to borrow money cheaper and over a longer term from somewhere else
- you might be able to roll your payday loans and other debts up into a consolidation loan
- you could think about dipping into any savings you have
- do you have anything you could sell quickly for money?
- what if you feel that you’re at the end of the line with payday loan debt?
Before you read on, write down how much you owe to payday loan companies. Then, investigate the options we list below to see if any of them are particular suitable for you and your situation.
Can you borrow money from somewhere else?
Many people apply for payday loans because they generally tend to get approved for a loan and receive their money faster than by going in to see their bank manager. However, that doesn’t always mean that you’re getting the best deal.
You may wish to try to apply for a loan over a much longer period – 1 year, 2 years, 3 years. Loans taken out for longer periods of time tend to have lower interest rates than payday loans.
The longer you take a loan out for, the less you pay back every month (although please be aware that you pay back more in interest over time). This might go a long way to reduce to pressure on your household cash flow, leaving you with the money you need to pay for the essentials.
And on that subject…
Can you consolidate your debt?
How much debt are you in total? What about your other unsecured debt like credit cards, overdrafts, short-term loans, and other types of loans?
Debt consolidation loans are used by borrowers to pay off multiple credit cards, overdrafts, short-term loans, and other types of loans in one go.
What’s the logic behind that? Many loans have interest rates of between 10% and 20%. You could be paying 20% up to 50% on your credit cards and store cards. You might have five or six different companies collecting repayments from your bank account at different rates every month.
For many borrowers, it makes more sense to take out a loan to pay off all of their credit cards, overdrafts, short-term loans, and other types of loans at a lower interest rate. When structured correctly, the amount collected from your bank account in repayments could actually fall each month leaving you with more spare cash to play with. You may even end up paying your debts back a lot quicker (especially in case with credit card and store card accounts) and a lot less in interest by the time you’ve paid off your consolidation loan.
If you consider a debt consolidation loan, make sure that you get the best interest rate possible, that the monthly repayments are easily manageable, and that, when you get your loan, that you really do pay off all of your outstanding credit cards, overdrafts, short-term loans, and other types of loans.
Can you pay some of your payday loan debt down with your savings?
Many people think in pluses and minuses about their debt. As long as they have some savings, it’s OK to take out a payday loan because they have some savings put aside. And to keep their level of savings up to where they want it to be, they’d rather take out a payday loan than dip into their savings.
It makes sense in a way – we all like the feeling that there’s a safety net beneath us. However, you will save more money by settling your payday loan early by using your savings. If you have savings, dip into some of it and that means you won’t be paying interest that you don’t need to pay.
Can you raise money quickly?
Another possibility to get out of payday loan debt is to raise money. You could:
- ask your boss for a pay rise or for overtime
- sell your skills via an online freelancing platform like Fiverr or PeoplePerHour
- sell any unwanted items you don’t need via eBay or Shpock.
What if you’re really stuck?
But what if you can’t see a way out? The first thing you need to do is to speak to your payday loan provider. Payday loan providers are, by law, required to:
- direct you so that you can get in touch with debt charities like StepChange or the Citizens Advice Bureau who can represent you when negotiating with your payday loan provider on repaying your debt
- stop attempting to collect payment when you’re putting together a debt repayment plan
- consider freezing interest and suspending charges while you sort your finances out
If you’re worried about meeting your payday loan repayment and paying either for food, electricity, gas and for your mortgage/rent at the same time, you can phone your bank to stop the recurring payment authority on your account which authorises your small payday loans company to collect their money. Please do make sure that you tell your lender if you intend to do this.