Don’t Fall Into A Spiral Of Debt

Paying high interest on credit cards is never a good strategy to building wealth and achieving positive personal finance goals.  What is a high rate?  These days, 25% is probably considered high.

If you find yourself in a high interest situation, hopefully you are trying to do something about it.  Some people continue paying on the debt, hopefully whittling away the debt.  Others try to take advantage of balance transfers for lower rate cards.

Regardless of your intent, getting out from underneath a high interest loan is key, because any dollar paid in interest is a dollar you no longer have.  Reducing those dollars spent will help put them in your pocket instead.

One of the things that can come up that can really throw a monkey wrench in getting away from high interest credit cards is a situation in which you may not be able to pay even your minimum payment.  This can have a long lasting effect on your credit as a late payment can cause your rates to go up even further and could add additional late fees to your account.  In certain cases, say if your paycheck is coming a day or two later, it could make sense to look at a short term loan.

Keep in mind timing.  Paying the loan off in a couple of days is costly, but can sometimes be less costly than a late fee.

If you do have to go this route, there are two key takeaways.  First, it must be a one time thing.  Getting into a habit of using these loans will cost you more and more each time, leaving you with less of your income available to pay your credit cards and other bills.  The goal is more money in your pocket, not less.  Second, you must start to build a cushion so that you don’t get in this situation again.  Even putting $5-10 of each paycheck aside will slowly start building a small savings, so that in the future, you could tap into that rather than turning to an outside provider that will be happy to charge you.

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Pros and Cons of Payday Loans

Payday loans have changed the UK financial services industry in a way that is unheard of. Statistics show that over 1.2m Brits have used these short term loans at least once, and the growing popularity of these loans mean that they are here to stay.  As with all financial services products, there are pros and cons to using payday loans online:

PROS

  • Payday loans give people access to credit in a way that has been done before. The Consumer Credit Act made it easier for people to find credit without going through a lot of bureaucracy to get there. For complete convenience, payday loans give people credit without stress.
  • They make consumers bankable.  A payday loan shows up on your credit report. This is excellent news for people who want to improve their credit rating. Paying back your short term loan on time will show other lenders such as mortgage lenders that you can be trusted with their money and resources.
  • Payday loans can be applied for online. Most personal loans from the high street require you to go into the branch in order to discuss your account. This aspect of the equation is taken away when you apply for same day loans. Simply sending your application in online will allow you to be cleared for instant cash.

CONS

  • Interest rates can be high. One feature of loans that borrowers should be aware of is interest rates tend to be higher than high street banks. This is to cover the risk of default of payday loan borrowers. If you know you can afford the loan you are applying for, the interest rate should not have a large effect on your ability to repay it.
  • If you don’t keep up with repayments, debts can roll over which can put financial pressure on you.

Top tip: Look at your financial expenses and income each month to assess how much you can borrow and pay off (interest included).

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