Payday loans are rife with issues, and they even have a bad reputation to most people. But the truth is, they only cause problems if you do not know how to handle your finances properly. This applies to any payday loan, including those you get from any licensed money lender online.
Here are four financial pitfalls to avoid when dealing with payday loans.
Borrow only the amount you need
It’s always tempting to borrow more than what you actually need when taking out a loan. Avoid this at all costs. It will only do more harm than good.
Borrowing a higher principal amount means you have a bigger debt to pay back. Interest will also be higher, so you will have even more to pay. This is the easiest way to have your debt spiral out of control.
To avoid falling into a financial pitfall, borrow only what you need – nothing more. Even better, if you can afford to borrow less than what you need, and just find another way to fill in the gap, do that. The smaller the loan you have to pay back, the better.
Avoid taking out consecutive payday loans
As much as you can, take out only one payday loan at a time. Avoid having consecutive loans on consecutive paydays. This will only cause your debt to balloon uncontrollably.
Once you have paid back one payday loan, adjust your finances so you don’t have to take out another loan on your next pay period. Remove unnecessary expenses and cut down on spending as much as you can. That way, you may be able to budget your salary to cover all your living expenses.
But in dire situations that call for another loan, make sure it is within your means to pay back. Remember, loans that are too big can ruin your finances.
Make regular loan repayments part of your budget
If you take out a payday loan – or any kind of loan – of course, you need to be able to pay it back. Consistently missing payments is bad news for your credit score. In other words, credit institutions will trust you less as you are not able to pay your loans back on time. With a low credit score, you will find it harder to apply for additional loans in the future.
To keep your credit score – and your budget – healthy, you need to make loan repayments a regular part of your budget. As much as you can, pay down the full amount due every month. Avoid paying only the minimum, as you will end up paying more interest. The faster you can pay off the loan, the less money you will lose to interest payments.
Keep your spending below your means
The most effective way to stay out of debt is to spend below your means. In other words, your expenses must always be less than your income. If you earn S$3,500 per month, then your monthly expenses must be less than that. If you can designate some of your money for savings, then all the better.
Conclusion
Payday loans will not quite be problematic if you know how to handle your finances well. If you utilise these loans properly, they can be a helping hand in times of need. Just make sure to approach a reputable, licensed money lender in Toa Payoh and in other areas of Singapore. Legitimate moneylenders are always the best options for loans.
Leave a Reply