A payday loan sounds like such a good idea at the time. You've got an expense you weren't expecting. It's only a week until you get your salary. Why not take out a short term payday loan?
But before you sign those papers or click the "Apply" button online, beware. What you don't know about payday loans can cause you a lot of grief.
First of all, stop and consider your financial situation. Often, the very fact that you need a payday loan suggests that you are already in some kind of financial difficulty. If the money you're bringing in doesn't cover your expenses, leaving you regularly short on mortgage, rent and utilities, a payday loan will not help in the long run. Instead, consider getting some financial counseling.
The Problem with Payday Loans
There are two basic problems with payday loans. First, lenders charge absolutely devilish interest rates. You can easily end up paying 25 pounds in interest for every 100 pounds you borrow. That kind of money adds up quickly.
Second, you may find that even when you are paid your salary, you still do not have enough to cover the cost of the payday loan and its interest. No worries, the lender says, you can simply roll it over to the next month...while it accumulates more interest, of course.
Soon, you're in so far over your head that your only option seems like defaulting.
Defaulting on a Payday Loan
Defaulting on a payday loan can lead to several negative consequences. The lender may report you to the credit company and significantly damage your credit score. The lender may also initiate civil proceedings against you, although this is unlikely. The amounts of money involved are usually rather small, to the lender, that is, and not worth his or her time to go through the court process.
Another unpleasant outcome is that your debt may be turned over to a debt collection agency which may harass you, make threats, and otherwise trying to intimidate you into coming up with money you don't have. The whole situation may begin to seem hopeless.
Help IS Available
Don't despair. If you're in over your head, you're not alone. Many consumers have been in your position and fought their way back to solvency. One agency that can help you is the National Debt Line. You can call them on the phone at 0808 808 4000 for personal advice.
You can also visit their website which offers tons of tools for managing your budget and dealing with creditors. Some of what they have available includes:
- Self Help Packets to help you through the entire process of debt management
- Fact Sheets dealing with every topic from harassment to debt settlement
- Personal Budget Sheets
- A Comprehensive List of Options for Paying Back Debts
- Sample Letters to Send to Creditors
- A Comprehensive List of Frequently Asked Questions
Another valuable online resource is Martin Lewis' Money Saving Expert which offers tools, advice, and referrals, all in the tone of a friendly coach.
Getting into trouble with payday loan debt is frightening, but it needn't be the end of the world. With a little help and some hard work, you can clear your debt and ease your mind.
