6 ways to reduce your dependence on payday loans

[Mar 4, 2011.]

 

Consumers with an emergency savings account can use those funds to pay for unexpected expenses, but individuals without enough savings have to rely on payday advance loans to handle urgent financial needs. For many people, a lack of savings goes hand-in-hand with too much debt, including existing short-term payday loans. While using an occasional payday loan is nothing to be ashamed of, consumers should see it as a signal that it is a good time to evaluate finances, take steps to reduce debt, and build a savings account.

Six tips to get out of debt

1. Review your debts. Nothing works as well to open your eyes to debt issues as making a list of all of your creditors. Include the total amount owed, the minimum payment due and the interest rate charged. People tend to pay bills in fits and spurts. They may not understand the magnitude of their need for debt relief until they see the big picture.


2. Make a spending plan. Write down all your sources of income. Figure out how much money you can apply to debt reduction.


3. Pay off high-interest debt first. If you have credit card debt that charge 15 percent, 20 percent or more on the balance, see if you can qualify for a low-interest credit card and transfer the balance. If you cannot transfer the high-interest debt, focus every extra penny on retiring it.


4. Stop using credit cards. Remove your credit cards from your wallet. Use cash or a debit card for all your expenses.


5. Start saving. While financial experts recommend putting five percent to ten percent of monthly income (or more if you can afford it) into an emergency savings account, you will need to balance saving and debt repayment. Start by saving at least a little bit with an automatic transfer into a savings account. Even if you save only a few hundred dollars, this may mean the difference between a quick payday loan and spending your own money the next time there's an emergency.


6. Pay more than the minimum, on time. Avoid adding to your debt with late fees. Credit card bills often list how much you need to pay each month to eliminate your balance within a certain time period. Aim for that amount if your budget can handle it. Even a few extra dollars above the minimum makes a difference.

Reducing debt and starting to save may not be any one's idea of fun, but the financial and emotional rewards can be long lasting. Imagine having the peace of mind of knowing you can handle the next emergency. Wouldn't that be priceless?

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.