So you are thinking what does debt consolidation and payday loans have in common? Well typically people who opt for payday loans are not very far from those who are currently considering debt consolidation as an effort to lower high interest credit card monthly payments. We live in a country where credit is relatively easy. In fact on any given day, most of you will receive a letter from a credit card company offering you the world but spelling out the harsh details in the fine print that unfortunately few ever take time to read. This article is not meant to pit debt consolidation and payday loans as good vs. evil.
It is intended to help you understand why people chose both alternatives. First of all, what exactly is debt consolidation? Debt Consolidation is the process of aggregating unsecured debt in order to lower overall interest rate and have one monthly payment. Who needs debt consolidation? If you are stuck with high interest monthly payments, especially from credit card debt, it is likely that debt consolidation would be appealing. In many cases people simply can not afford to pay what they are currently paying.
Keep this in mind. Lets transition to payday loans or cash advance. People that want a cash advance are those who are in a bind and need emergency cash. Payday loans and cash advance have high interest rates and many states prohibit them. I am not against them because I understand why people may need them as a last resort. In both insistences people are seeking debt relief; however, those solutions are not the ultimate solutions to the problems they try to solve. The true answer lies in our ability to spend vs. save.
The best debt consolidation program will get you out of debt if you finish the program; however, to fix the problem you must understand that living within your means is the true solution. A cash advance may help you pay for a bill when you come up short, but saving for a raining day is a lot cheaper than getting a payday loan. By acknowledging our own weakness, we can become stronger when we take action to improve ourselves.
Originally the form of lending known as "Payday Loans" originated in the USA and has now landed on the shores of the UK - spreading at an alarming rate.
Payday loans are short term credit loans that are repaid in full on the day that you receive your salary from your employer. Payday loans are really designed to get you out of a 'fix' when you find yourself short of money before payday but they do have an extremely high interest rate attached to them.
A typical example of this would be that you borrow £100 but repay £130 or £140!!
When you take into accoun that a Payday loan is a fairly short term form of lending, the interest rate is a great deal higher than other forms of lending.
Now it may just be that you find yourself in desperate need of a small loan and a Payday loan will fit your circumstances. What you will need to bear in mind is that if you are short of money one month and you borrow money in the form of a Payday loan then you will need to pay the original amount that you borrowed, plus the interest.
This may have a 'knock-on' effect of then leaving you short of money again. When faced with that situation you may be tempted to turn to the Payday Loan option again and this is where the hidden danger is waiting for you.
Let's say that you borrowed £200 one month and on your payday you paid back £260. This would leave a £260 hole in your wages which could temp you (or leave you no other option) but to use the Payday loan option again and borrow another £200.
This is the start of a vicious circle that many people find themselves trapped and the payday loan hidden trap will have snagged another victim.
Each month when you repay the £200 loan you are paying £260 out of your wages - this leaves a £260 hole in your wages - so you borrow £200 again to 'fill the hole'.
Then the process repeats itself again when you have to repay £260 on payday - you're trapped in the Payday loan circle of debt.
The loan company lend you £200 once - it's the same £200 the re-lend you each month - and for this pleasure you are paying them £60 each month when you repay the loan.
Over a 12 month period you will have paid the loan company £1,200 for basically borrowing one lot of £200.
It is a very harsh reality for many people who unfortunately have no other option and are unable to get out of the circle. If you are considering a payday loan then carefully think about what you are getting in to before borrowing any money.
If you have no other option and are 100% certain that you will have enough money to repay the loan without it affecting the next months finances then a payday loan could be your only option.
Otherwise don't fall into the payday loan trap. Try and get through or ask a friend to lend you some money - even if it isn't as much as a Payday loan company - it will be cheaper when it comes to paying it back.
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