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Short Term Loans: Making Them Work


So, You've Taken Out A Payday Loan--Now What?

If you've taken out a payday loan recently, you're not alone. Payday loans are extremely common in today's economic climate. In fact, according to a recent market analysis, there are more payday lenders in most areas than there are McDonald's restaurants. If anything, this should prove to you that no matter what emergency or extenuating financial circumstances have brought you to require a payday loan, your situation is completely normal.

However, since a payday loan is a loan against money you'll likely need to meet your living expenses and other costs in the future, you'll need to have a financial plan for when your loan is paid off. Otherwise, you run the risk of becoming a part of the repeat loan client base--which accounts for almost 98% of the payday loan market. Fortunately, by making a few adjustments and changing some financial habits, you can use your payday loan (from a company like Money 4 You) as the financial safety net it's intended to provide.

Adjustment #1--Pay Yourself Each Week

After your loan is paid off, it's normal to breathe a sigh of relief and go back to the spending habits that you've always exhibited. This is a huge mistake. After all, if you had a significant amount of money in a savings account, you would have never needed a payday loan. The good news is that paying back your payday loan is a perfect opportunity to develop sound savings habits.

You'll need to pay part of your next few checks back to the payday loan lender--forcing you to live on a tighter budget. Instead of raising your spending after the debt is paid, consider paying yourself the amount you paid to your payday lender in the form of a savings deposit. After a year or so, you'll have a significant financial cushion to help you weather future financial hardships.

Adjustment #2--Develop Your Own Credit

Payday loans are designed to be short-term loans. As a result, they often carry a one-time origination fee of $15 dollars per $100 dollars borrowed. If you calculate that cost over a year or more, the Annual Percentage Rate of the loan is approximately 400%

This doesn't matter much to a payday borrower, because they'll pay the loan back on their next paycheck. That said, for expenses that take a few months or longer to deal with, traditional credit is often a better choice. Once your payday loan is paid off, try to develop a credit balance through a traditional credit company, or pay down any balances that you currently carry. That way, when an expense comes up that requires time to pay off, you won't have to use short-term loans to deal with it.

Adjustment #3--Cut Your Costs

If you need to take a payday loan, you're probably living paycheck to paycheck in the first place. This is completely understandable--62% of Americans are in this exact same situation. In some cases, your income and your cost of living make this inevitable. However, you might be able to change this with a little effort.

Spend a month where you write down every dollar that you spend. Record all of your costs, regardless of whether they're monthly expenses or one-time costs. Compare that with your income and look for opportunities to cut back. If you can get your expenses down to the point where you have a couple hundred dollars left over every month, you're golden. 

Payday loans are a fantastic financial product. They make it simple to defer an unexpected cost for a few weeks. By using them appropriately and by taking the right steps after you've entered into a payday loan, you can ensure that you don't incur additional financial hardship.

About Me

Short Term Loans: Making Them Work

People warned me about taking out short-term loans, especially payday loans. What I found is that if I manage them responsibly, they come in very handy. On more than one occasion, these simple loans have helped me out of difficult situations. They took care of emergency car repairs, and provided the cash I needed to pay bills and avoid incurring late fees. I always repaid them on time, and the lender rewarded me by increasing the limit on how much I can borrow. If you are thinking of securing a payday loan, let me tell you what to look for in a lender. I'll also help you understand the commitment that you are assuming. With responsible use, I know you will find these loans as helpful for you as they've been for me.

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