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Reduce your debt and relying on payday loans

[Apr 8, 2011.]

 

If your go-to solution when you need to repair the car or pay for your child's medicine is a payday loan, it is time to evaluate your finances and create a debt relief plan. While not all payday loan borrowers are deeply in debt, many have either maxed-out their credit cards or are overloaded with car loans, student loans and other consumer debts. Reducing that debt and building an emergency savings account are twin steps that need to be taken to avoid relying too much on short-term payday loans.


Seven debt relief strategies



  1. Know what you owe. Most people who are in debt have no idea how much they owe. For each one, make a list of all your debts including the minimum payment and the interest rate so you know where you stand.

  2. Pay your bills on time. Set up email alerts from your creditors and pay your bills online so you are not relying on the post office. Late payments cost you money in fees and can result in a higher interest rate which will cost you more in the long run. Late payments also damage your credit score, making it harder to obtain new credit.

  3. Find a financial partner. Whether you consult with a credit counselor (try NFCC.org) or you talk with a spouse, a friend or a co-worker, you can commit yourself to reducing your spending or paying off debt by being accountable to someone besides yourself.

  4. Pay more than the minimum. Credit card statements are now required to show you the difference between making the minimum payment and a larger payment in terms of overall interest paid. Even if you just round up to the nearest ten or twenty dollars, it will make a big difference in reducing the balance.

  5. Try a debt repayment calculator. Many banks and credit card company websites have a calculator that you can use to experiment with different payment strategies. Pick a date when you want to be debt-free and see how much you need to pay each month to get there.

  6. Be consistent. Getting into debt takes a long time, and sometimes getting out of debt does, too. Keep making your payments and stop using credit and you will begin to see an improving financial picture. Take time once every month or so to rewrite your list of debts to check your progress.

  7. Set up automatic savings. To reduce your dependence on payday loans, you will need to set up an emergency fund. The simplest way to start is to have funds automatically transferred from each paycheck into a savings account. Even $50 per month can be a start to your savings goal.


Committing yourself to a financial plan can be the best way to escape the cycle of debt.

 

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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