Financial emergencies can happen to just anybody; maybe a car repair, an unplanned medical expense, and lots more. That is why it is advisable to have emergency savings.
In the case of not having emergency savings, what do you do when unplanned expenses come knocking on your door?
If your option is a Payday loan, then you are making a very bad choice that can harm your personal finance. A Payday loan might look like what you need, but it is not.
You may think It’s just a small amount and won’t affect your credit score, but it’s not. Don’t fall for it, it’s a debt trap.
Thankfully, you can avoid taking out a payday loan by following the insider tips in this article.
Why You Should Avoid Payday Loans
Payday loans come with exorbitant interest rates and fees that can keep borrowers trapped. For every $100 borrowed, you should expect to pay $10 to $30. Which is about a 300%-600% annual percentage rate (APR). This is way too high compared to other loans.
If per adventure you missed your payment, or do not have sufficient funds available in your bank account to cash your check, your payday loan lender will charge you an additional fee aside from the interest fee you are to pay.
With time, it adds up way more than a personal one to become a huge unpayable debt. Soon, your payday lenders would start disturbing you with phone calls, texts, and may even take you to court.
Tips To Avoid Payday Loans
To avoid payday loans:
Apply for a Personal Loan
Unlike a payday loan, a personal loan interest charge ranges from 5% to 35% depending on your creditworthiness and can be paid in fixed installments for a period of one to five years.
You can get a personal loan through a bank, online lenders, edit unions, or credit card companies.
Borrow from Your 401(k)
According to the U.S Internal Revenue Service:
A 401(k) plan is a company-sponsored, retirement savings account for employees. Instead of taking a payday loan, you can use your 401(k) for your emergencies.
This way, you’ll avoid paying the high-interest fee that comes with a Payday loan.
Request for an Advance Payment On Your Next Paycheck
Instead of taking a payday loan, ask your employer for an advance payment on your next paycheck. This will save you so much stress and keep you at rest since it is your money you are spending and not a loan.
Take a Cash Advance
A cash advance allows you to borrow a specific amount of money from your credit card company. You will have to pay a fee for the service.
Consider withdrawing money using your credit card to settle your emergencies. However, you should endeavor to pay it off as soon as possible so it doesn’t affect your credit score.
Conclusion
A Payday loan will cost you more than the financial challenge you have. To avoid getting stuck in its debt trap, simply avoid it. However, if you are stuck in a payday loan debt, you can get help with a payday loan, by applying for debt consolidation.
