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Nine ways to start saving and reduce reliance on payday loans

[Sep 3, 2010.]

 

The best way to avoid getting into too much debt and being unable to repay your payday loans is to save some money in a "rainy day" fund. The National Foundation for Credit Counseling (NFCC) says that even in tough times, consumers need to find a way to save money. Here are nine suggestions for getting started:

  1. Start small. Put 10 percent of your take-home from each paycheck into an interest-bearing account. At the end of one year, you will have a little more than one month's salary as your emergency fund.
  2. Have your savings automatically transferred into a separate account.
  3. Shop around so you earn the highest interest on your savings account.
  4. Commit to keeping the savings in your account by deciding ahead of time what a true emergency would be. Don't be tempted to pull it out for non-emergency spending.
  5. Set a goal for something easily attainable, even as low as $100. Once you reach that goal, set another one.
  6. Examine all your spending categories. If you could save $10 out of 15 different spending categories (food, gas) you would have $150 month to put in savings. In one year, you would have $1800 in your savings fund.
  7. Involve your whole family in the savings plan. Try to make a game out of saving and even award a prize to the family member who saves the most or comes up with the most innovative way to reduce spending or increase your income.
  8. Save for specific needs. Once you have an emergency fund in place, you may want to save for other needs such as debt reduction, a car or even a home. If you have accumulated debt from too many payday loans or have credit card debt, you should designate savings to get out of debt.
  9. Pretend it never happened. If you receive a raise, a bonus or a gift of money, put the extra money directly into savings. A tax refund should be treated the same way.

The NFCC says that most people do not have a sufficient emergency fund, defined as three to six months of income, saved. Multiplying your monthly take-home pay by three or six or more (some financial experts suggest nine or twelve months of income saved is safer) can leave most people feeling overwhelmed and unwilling to try to save money. But starting small, using some of these tips, can help you accumulate enough money to avoid relying too heavily on payday loans.

 

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.

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