Payday Loans : Use them wisely

By Michael Strauss

Payday loans have long been a mainstay of the USA financial sector, offering as they do fast cash to people on low incomes to help them through the gap between running out of money and receiving their next wage packet. They are now starting to become more available and popular over here as well.

Although they have a deserved reputation for being an expensive form of credit, these cash advance loans can provide a genuine service for people in need of funds but without the prospect of securing finance from a more traditional source such as a bank overdraft. In previous times, these people might have been forced to resort to loans from more dubious sources, with all the risks that that entails.

The Payday Trap

However, even putting aside their relatively high cost, there is one major drawback to payday loans - it's all too easy to get into the trap of renewing your loan each month, and relying on it as part of your budget rather than as an emergency stop gap. This is where these loans really do become expensive, as a new fee is charged each and every month, quickly adding up to an eye-wateringly high APR figure if the loan isn't cleared within a short period.

If you find yourself renewing your loan more than once or twice, it really is high time to see if you can find a way to wean yourself off this expensive addiction to your cash advance. Maybe a relative can help, or maybe you'll find that your bank is in fact willing to extend you some form of credit such as an overdraft of a loan. If this is unlikely, and let's face it if these options had been available in the first place you probably wouldn't have taken out a payday loan at all, then another tack needs to be taken.

The traditional advice would be to live extremely frugally for a month, eating beans on toast and having a month of early nights. This is good advice if it's at all realistic, but for people with families, jobs, and commitments, the prospect of being able to go to ground completely for a month is difficult to envisage.

Reduce Your Loan

Instead, the best action is to accept that you need to renew your loan, but instead of borrowing the full amount, take out slightly less each month in order to wean you off your loan reliance in manageable steps.

Of course, the best way of avoiding the payday loan trap is to avoid taking out the loan in the first place, or if it really is necessary to do so, then to treat it as the emergency stop-gap that it should be and not as part of a lifestyle choice.