Do you want to avoid a payday loan in 2017? A new year means a fresh start and a great opportunity to take control of your finances. If the Boxing Day sales or overspending at Christmas caused you to live beyond your means then there’s still time to put a plan in place.
Making better decisions about spending and living according to a budget can help you manage your money better. Something, which will help you avoid a payday loan in 2017.
What is a payday loan?
A payday loan is also known as a short term loan. It is a form of borrowing that is typically only used for emergencies because the interest rate can be high.
The cost of borrowing is much usually higher than with other forms of credit, such as a credit card, which is a longer term solution.
Why take out a payday loan?
If you are in need of money at the end of the month but don’t have any available then you could apply for a short term loan. You would receive the money quickly and then pay it back with your next pay check.
In many cases, the eligibility criteria for a payday loan is less strict than with other types of borrowing.
If a lender or credit broker has turned you down for a credit card because of a poor credit, you might still be approved for a short-term loan.
While it can be a convenient way of borrowing money, it comes with several drawbacks.
Why should you try and avoid a short term loan?
Having to take out a payday loan suggests that you don’t have enough money in your current account and no savings to fall back on.
It also indicates that you might have bad credit and so you may have been turned down for other forms of credit with better interest rates.
You can read more about bad credit and how to rebuild it here.
If you frequently have to rely on this type of borrowing then it suggests that you are spending more money than you have coming in.
Short term loans typically come with higher interest rates.
Usually the better your credit score, the better interest rates you will receive. This means that you have more choice when selecting a loan or credit card.
Your credit score could be affected
If you do not repay your loan on time then you will pay back much more than you borrowed. Your credit score may also be negatively affected, which will harm your ability to get credit in the future.
Are you relying on credit to get by?
The circumstances around why you need a short term loan may be out of your control but there is lots that you can do to take back control of your money.
It would be far better to build financial security so that you do not have to rely on credit to get by.
Living within your means
How to make a budget
The key to avoiding having to take out credit, such as a payday loan, is not spending more money than you have coming in. If you haven’t already calculated your regular incomings and outgoings then it is essential that you do so.
There are lots of online resources to help you create a budget. These include an online Budget Advice Planner on the Money Advice Service website. If you prefer, then you can simply write it down, or use a spreadsheet on your computer.
First look at any money that you have coming in on a regular basis, either weekly or monthly. This might include:
- Money from any extra jobs
- Rental income
- Benefits and tax credits
- Student loans or bursaries
Calculate it and then take a look at all the money that you have going out. This might include:
- Household bills
- Rent or mortgage payments
- Savings and investments
- Credit repayments
- Money for petrol or travel
- Gym membership
- Insurance payments
- Phone contract
Once you have calculated your regular outgoings you will see what money you have left over. This is known as your disposable income. It is the money that you have available for non-essentials, such as clothes and socialising.
How to avoid impulse purchases
Avoiding impulse spending is one of the best ways to ensure that you stay debt free, yet it is not easy. We live in a consumer world where marketing messages are fired at us 24-7 and it can take lots of will power to resist spending.
Make a 30-day list
Many people find that making a 30-day list is a useful way to think through a purchase before committing to buy it.
Keep the list in a notebook or on your phone and jot down the details of anything that you wish to buy. From a dress to a gadget, or a book, write it down and then revisit the list regularly.
After 30 days, if you still feel that you want or need the item and that you have enough money to cover it, then you should go ahead and purchase it.
The internet has made shopping around for the best deals far easier. If you see an item that you like then search for it online and try using the Google ‘shopping,’ feature. This filters item from various retailers by price.
Don’t forget sites like Amazon and eBay, where you can often find branded items cheaper than on the high street.
Have a look at sites such as Top Cashback ( www.topcashback.com). Here you can receive cash back on certain purchases made through the site.
Also look for online voucher codes on websites such as My Voucher Codes (my vouchercodes.co.uk). Here you can type in the name of the shop that you want to buy from to find any available discount codes.
Spending during the sales
At this time of year, the sales offer lots of temptation both online and offline. If you love shopping and the sales are part of your Christmas tradition then it is important that you approach them carefully.
Allocate a specific sum of money from your disposable income and do not overspend. Remember the consequences and stress that comes from overstretching yourself financially. A great bargain is very rarely worth getting into debt for.
Make a list of the items that you want or need and try and keep to it. Sale items probably won’t be around for 30 days and so in this case, there is no point using your 30-day list.
If you have not allocated any money in your budget for sale shopping then the best advice is to avoid the sales altogether. Don’t go shopping and don’t go online shopping.
How to manage your Christmas Debt
The average family spends over £800 on Christmas. If you spent more than planned over the festive period then there is a good chance that you may have used credit to cover some of the costs.
Whether you used credit cards, your overdraft or a loan, it is important that you do not keep on overspending. Make your budget and try your best to keep to it.
If you can, then you should start repaying any debt accumulated over Christmas as soon as possible. This will help avoid high-interest charges and set you in good stead for the year ahead.
Pay off debts with the highest interest rates first. If you took out a payday loan then you should make paying this back a top priority.
If you have a significant amount of debt then think about increasing your repayments and learning to live a more frugal lifestyle.
There are lots of ways that you can cut costs and increase your income. We have written article about how to cut costs and live within your means here.
Set financial goals
A new year is symbolic because it feels like a clean slate. It is a fantastic opportunity to think about what you want from the next 12 months and how you want to get there.
If you have minimal debt then a good goal for you might be saving a certain amount of money, paying off your overdraft, or improving your credit score.
Perhaps you have more debt to pay off? In this case, you could look at cutting costs and repaying your debt faster, or taking control of your finances by making a budget and a repayment plan.
Goal setting is an effective way of helping you get what you want and it can be helpful to share your goals with family and friends. They will hopefully support you and help you stick to them, plus they might be inspired to set some financial goals of their own.
Avoid a payday loan in 2017
By taking stock of your finances and living on a budget you will be more in control of your money. This means that you will be less likely to have to rely on credit, such as a payday loan.
If you are concerned about your financial situation then you can contact the Money Advice Service or Citizens Advice. They offer free and impartial advice.