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Four Steps to Avoid the Payday Loan Trap

If ever you find yourself in a difficult financial situation, you might be tempted to take out a payday loan. But, take a deep breath, and know that this is most likely not your best option. There are numerous steps you can take to avoid these emergency loans, which might seem to be a quick solution, but the payday loan trap is more likely to introduce more problems than it solves.

Most of these payday advances (also called paycheck loans) are considered predatory lending because the benefits to the lender far outweigh those of the borrower. In fact, the terms are often abusive to the borrower. They often come with outrageously high fees and/or interest rates, which lead to a cycle of debt that is difficult to escape. Consider these tips to avoid the payday loan trap altogether.

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1. Carefully Assess Your Situation
Many people know they are in debt or are having trouble paying their bills, but they’re too afraid to actually look at the numbers. However, to best understand how much help you actually need, you must be aware of your situation. Sit down, and carefully review your bills, your debts, your monthly expenses, and your income. Once you have an accurate picture of your situation, you’ll be more educated and better able to move on to the next step.

2. Contact Your Creditors
Many credit card companies, lenders, and retailers are willing to work with people who fall behind. Reach out to them, share your situation, and find out if they have any flexibility in how you make your payments. For example, you might qualify to claim hardship on a student loan. Your loan provider might have a program in place to put your account on hold or put your loans into forbearance until you get back on your feet. If you have extensive credit card debt, you might be able to move your debt to a credit card with a lower interest rate or even a card with 0% interest for a certain period of time. Perhaps you have a car with equity that you could refinance, and use the available cash for your emergency, maybe even at a lower rate than when you first financed the vehicle. If these tactics don’t work, you might be able to work with a representative at your financial institution or a third-party credit relief agency who can negotiate on your behalf, and help you take control of your financial situation. Who knows what options might be available to you? But you won’t know until you try.

3. Consider Liquidating Some of Your Assets
Take a long, hard look at your possessions and assets. Are there items you might be able to sell? Perhaps you have a second or third car that is not really necessary. Perhaps you have enough items to host a garage sale. Talk to your family about any luxury items that might serve your family better sold.

4. Take on Extra Work
Another option to consider is taking on more work to supplement your income. This might include adding more hours at your current job or taking on a second job outside of your typical work hours. It’s a big decision, but it might help if you decide ahead of time how long you’ll need to work the extra job. If you put every bit of the extra income toward your debt, you’ll have the satisfaction of knowing it won’t last forever.

Essentially, try to do anything you can to avoid the payday loan trap. Anything is better than the fees, interest rates, and potential cycle of debt that payday loans present. They might seem like a quick fix, but they are often just the beginning of an even worse financial situation.