Ending Payday Loan Dependence May Require Drastic Measures

Thursday, January 3, 2013

It sometimes requires some difficult decisions to be made to put an end to the payday loan cycle, which is continuous use of payday loans to pay normal living expenses.

A payday loan is designed for emergency situations that require quick cash and a short turnaround. When a payday loan is used for normal living expenses, it can have a disastrous effect on your finances as you try to figure out how to get to your next paycheck with less income since you had to pay a high interest rate on the payday loan during the previous pay period.

To get out of this cycle, you either need to increase your income or decrease your normal living expenses. If you are unable to get a better income and have already cut out all the expenses you can think of, it may be time to consider more drastic measures, such as getting rid of a car or a home.

If you have both a car and a home and are making payments on both, it can be a difficult decision to get rid of one. Looking at the pros and cons of both can help with the decision-making process. It would help to make a budget of your monthly income and expenses to determine how much you need to adjust your expenses so your income can cover them each month.

First of all, you will need to consider how you will replace the car or the home when you get rid of them. If you used the car for work, you will need to figure out how you will get to work without it. Of course, with a home, you will need to find another place to live, most likely an apartment, condominium, or a smaller, more affordable home you can rent or buy.

If you have more than one car, then you might be able to use one car for all your transportation needs, which could make it easier to replace. On the other hand, if it is your only form of transportation to work and other options (walking, biking, or public transportation) are not viable, then getting rid of your home might be the only option for you. Also, if you have an expensive car that uses a lot of gas, you might be able to trade it in on a less-expensive vehicle that is more economical.

A home will have to be replaced. Look at listings of places to rent that will fulfill your needs to get an idea of how much you will have to pay each month to live there. Renting is the most likely option, at least in the short term, but if you have a large house in an expensive neighborhood, you may be able to sell it and buy a smaller house in a more affordable area.

You'll also want to consider how much you will save with each option. This not only means car or house payments, but things like insurance, gas, maintenance costs and utilities. For example, most rentals will include the cost of water and garbage in the rent, so look at an average of what you've spent over the previous 12 months on water and garbage to figure out how much you would save by renting.

Another thing to consider is where you might live. If you can find a place closer to your work, you will save on the cost of commuting to work.

Also, look at how you will get rid of a car or home. If you owe more on one than it is worth, then it would be better to sell the one that can get back enough to cover your loan. If both are worth less than the loan, then you might need to consider things like a short sale or deed in lieu of foreclosure.

Make sure you get a deal in writing that states the lender cannot come after you for the remainder of the loan, otherwise you may need to consider bankruptcy to protect you. All of these choices will have a bad effect on your credit, which is something else to consider.

It's never pleasant to give up something that you've come accustomed to, but sometimes we have to do unpleasant things to end a payday loan cycle.

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