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Ways to Get Out of Payday Loan Trap
If you are living paycheck to paycheck, without any savings, one single emergency can wreak financial havoc in your life. It’s a precarious situation to be in because you’re low on cash, you have exhausted the limits on your credit cards, and none of your family or friends are in a situation to help you out. Borrowing the amount from a payday loan lenders appears to be a logical solution. You get to borrow what you need, and pay it back with interest when your salary kicks in. No harm, no foul, isn’t it? But, the payday loan can be a debt trap that begins innocently. Although a payday loan helps you get through the pressing financial situation, it can be bad news for people struggling to make ends meet, leading to a debt trap.
What are payday loans? Payday loans are unsecured loans targeted at people who need money urgently to meet a financial obligation, but don’t have the collateral or credit history to get a personal loan at better terms.
Why Is It Easy to Get Caught Into Payday Loan Debt Trap?
- Payday loans are considered predatory because they’re expensive. The interest charged on payday loans is very high, usually 1% per day.
- Lenders may additionally charge processing fee or administrative fees.
- Most payday loan borrowers use the loan for the wrong reasons. Instead of using the money for emergencies, most people use it for groceries, entertainment and rent.
How to Resolve Payday Loan Debt?
Here’s a closer look at some of the options available to get rid of payday loan debt:
Find an alternative lending source
Payday loans can be paid back from the money borrowed from a different source. You can get a personal loan at more agreeable loan terms and interest rate to pay off your payday loan. A variety of lenders, including online lending platforms like MoneyTap offer personal loans to help you escape the payday loan trap.
Set up an emergency fund so you have cash on hand when you need it. Start small and work your way up. Keep aside a small chunk of money every month and build on it. Have at least 6 months’ worth of living expenses in cash, which can cover any surprises life throws at you.
Build your credit
To ensure that you get affordable loans in the future, build your credit. If your credit score is poor or you have not been able to establish your credit history, start working towards building it. Get a small loan and make payments timely. Over time, your credit will slowly improve, making you more creditworthy for better and more affordable loans.
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