How and when to avoid a payday loan in 2019

How and when to avoid a payday loan in 2019
Lauren Howells
how to avoid taking out credit

Looking for advice on how and when to avoid a payday loan or a short term loan? Even if money is tight, there are plenty of ways that you can avoid high-cost credit and still get by. But how?

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There are positive changes you can make to your lifestyle and your approach to money. You can avoid using small loans by making better decisions on how to manage the cash you have spare after paying your bills.

There are even ways that you can increase the amount of financial freedom you have without needing a pay rise from the boss.

In this article, our researchers have examined the very best ways on how and when to avoid these loans.

Budget Monthly to live within your means

Your first step should be to put together a monthly budget to live within your means.

When you are careful with money, you can make it go a lot further. And, you might even be able to put money aside for emergencies.

Loans for people with bad credit profiles might feel like a temporary fix but remember that you have to pay it back with interest. If you take out a loan, you will have the money when you need it but you will have less in the long run.

How do you create a monthly budget to live within your means? There is a great online budget planner on the MoneyHelper website – click here to visit it. If you’ve not got time for that now, we have prepared one for you.

First write down “My Monthly Budget”.

Log into your online banking and then write down all the sources of money coming into your home:

  • salary
  • freelance work
  • second job
  • rental income
  • student loan
  • bursary
  • tax credits
  • benefits

Add them all together to calculate your monthly income.

Next, create a separate “Expenses” column.

List all your household bills and how much they cost you, including

  • your rent or mortgage payments
  • how much you put aside for savings or other investments
  • how much you pay back on loans or credit cards
  • your shopping bills
  • petrol/bus money
  • television subscription
  • gym membership
  • insurance payments, and more.

You should include every bill you see coming out regularly on your online banking.

Add up all your expenses and take it away from your income. The money left is your “discretionary budget”. That is your spare cash to spend on clothes, socialising, holidays, and more.

When to avoid a payday loan

Avoid a payday loan by avoiding impulse purchases

The amount you can save when you avoid impulse purchases surprises many people.

The coffee you get from Costa every morning before you go into work may cost you £1,000 a year. Grabbing lunch from the nearby local supermarket every day might cost you another £1,000 a year.

By making your own coffee and lunch, you could half these bills over the year – sometimes, you will even save more.

To avoid impulse purchases, make a 30-day list. Your 30-day list will contain treat items you can buy using your discretionary budget. Keep the list on your phone and check it often.

If you have to buy something on your list and it will not put you in any financial difficulty, buy it. Yet, if you hold off and keep revisiting your list, you might decide you do not need that dress or new tablet after all. If that is the case, then you should cross it off your list.

It is not always possible or desirable to avoid impulse purchases when you really want something.

If you decide that you do, shop around. Check to see if there is a sale on and the item you want is part of the sale. If it is not, try Amazon or eBay.

Or, use TopCashback to see if you can earn for buying the item you want. Or, a site like MyVoucherCode to see if there are any discount codes for the shop you want to buy your treat item from.

Your treat item in a month might be to spend £50 at their sales event. But, if it is not on your list, it might be best to avoid browsing the sale. This is because retailers know how to put pressure on you to buy before you have had the chance to consider if you really want it or not.

To avoid payday loans this year, live within your means.

Spend less on holidays and Christmas

Spending on holidays and Christmas is hard to avoid going overboard with. Acccording to the Independent newspaper, the average family spend per household on Christmas is £821.

Spending on holidays and at Christmas is important but it is also important to ensure your spending does not run away with you.

If you finance spending on holidays and at Christmas through a mixture of:

  • your wages
  • credit cards
  • overdrafts
  • and loans

try to make sure you start repaying any debt you have accumulated as soon as possible.

That way, you will cut down spending on interest on the debt through the year. Meaning more money for you and your family.

Look for cheaper holiday deals and try to do your Christmas shopping a few months advance.

For luxury items and non-essentials consider borrowing money from a friend rather than taking out credit for your purchase


Use comparison sites to spend less and avoid a loan

One great way of cutting down on the amount you spend is to use comparison sites. You enter your personal details and you will find the best deals available to you on:

  • Gas
  • Electricity
  • Insurance
  • Television subscriptions
  • Holidays and flights

Many companies spend all their time on getting new customers, rather than rewarding loyal ones.

Money Mail discovered loyal customers pay £270 more on gas and electricity bills than new customers. Read the report here.

Set financial goals to avoid borrowing

If you set financial goals for yourself, it is equal to having a monthly budget plan but on a much bigger scale. When they set financial goals, people target either the reduction or the elimination of debt as their target for the next 12 months.

Every time you make a repayment, your credit score will improve. This means the next time you need finance, you will get more companies offering money over longer periods of time at better rates.

Remember that with every time you pay the debt down or off, your discretionary budget goes up because you are paying less in interest. You may not be able to clear off your debt this year but what you do may mean it is possible next year.

To avoid payday loans this year, live within your means.

Why is it better to avoid a short-term loan?

There are many reasons why it is better to avoid a short-term loan. If you need one, you may not have any money left in your current account and no savings you can use to cover temporary cash shortfalls.

One of the main reasons why it is better to avoid a short-term loan is because of the higher interest rates charged. These higher interest rates make it harder for people to pay them back, putting them at a higher risk of default.

If you do not repay a personal loan on time, you may end up paying more in interest. What’s worse, your credit score will deteriorate further. Our team have written an article about how to deal with bad credit – click here to read it.

Perhaps the biggest reason why it is better to avoid a short-term loan is it suggests a borrower has to rely on credit just to get by.

If that is the case, it is a worrying sign that a borrower’s debt might be spiraling out of control. They may be using one form of finance to pay back the interest on another.

Reasons to avoid short-term credit

There are many reasons you should avoid taking out short-term credit. It is an expensive form of finance.

Compared to other types of borrowing, bad credit loans do not allow you to borrow a large amount of money. And you have to pay the loan back quickly together with the interest.

Instant cash loans you take out online should only be for emergencies that you cannot predict. Or bills so big they cannot be covered by your discretionary budget.

Our researchers have compiled this list of the 6 main reasons you should avoid taking out short-term credit:

1. You believe your circumstances may change

If you believe your circumstance may change and meeting all your repayments will be difficult, you should not consider a loan.

Examples of your circumstances changing include:

  • A baby on the way
  • moving home
  • an increase in your rent or your mortgage
  • an operation
  • or your insurance is due for renewal

2. Is it really a financial emergency?

When your car or washing machine breaks down, is it really a financial emergency? Payday loan and short term loan lenders are set up to help people in emergencies.

Could you wait a few weeks to save up to pay for this emergency?

When the Debt Advisory Centre questioned payday loan customers, only 44% of them were taken out to cover emergency situations. A quarter of them was for a treat or a holiday.

Short-term loans are not there to pay for these things. If you are thinking about taking out a loan for any of these reasons, why not approach friends or family first?

3. A friend or relative can lend you money

When to avoid a payday loan

Whether for a financial emergency or for some other reason, what if a friend or relative can lend you money instead? If a friend or relative can lend you money, that is nearly always better than taking out finance.

A friend or a relative will not charge you interest and they will not take you to court if you miss a repayment. You will find that, if a friend or relative can lend you money, they will often be more flexible over the repayments than a lender.

Make sure that if you fall into difficulty paying your friend or relative back that you keep them informed.

4. You want to borrow more than £1,000

If you want to borrow more than £1,000, you may have trouble finding a loan provider to borrow from.

Some prefer to lend in smaller amounts. Others only consider lending £1,000 to a customer who has taken out loans with them before and made repayments on time and in full.

You may consider the possibility of taking out loans from multiple loan companies.

We would not advise that. Juggling the repayments may become difficult if you have to make many repayments during the course of a month.

A few payday loans and short-term loan lenders are starting to offer loans of more than £1,000 but it is still a minority.

If you need to borrow £1,000 or more, you should think about approaching a bank or building society. Please be aware that many of these lenders will only work with borrowers with high credit scores.

5. You are borrowing money to service existing debts

If you are borrowing money to pay existing debts, this is a warning sign that you are about to enter a debt spiral.

A debt spiral is a situation where, no matter how hard you work, you are unable to pay off the debt you currently have. And you find that the amount of debt you owe overall increases over time.

One sign that you are borrowing money to service existing debts is to take out a loan to pay off the interest on something like:

  • a car loan
  • overdraft,
  • or credit card bill.

If you think this is happening to you, please contact one of the following debt charities without delay and explain your situation to them:

It may be worth considering whether an Individual Voluntary Arrangement, a Debt Relief Order (not in Scotland), or bankruptcy is an option for you.

6. You have access to cheaper forms of credit

Online short-term high-interest loans are not the right product for you if you have access to cheaper sources of credit.

Many people who do have access to cheaper forms of credit use the more expensive alternatives because they’re easy to apply for. Acceptance rates can be high with certain lenders, and the money often lands in your bank account straight away.

If you have access to cheaper forms of credit like credit cards or overdrafts, you should use those first. But, please be careful because:

  • It can take years to pay off a credit card if you only make the minimum monthly repayment
  • If you go into unauthorised overdraft, you may end up paying your bank or building a lot more than you intended

When to avoid a payday loan

Avoiding payday loans: Summary

Where possible, avoid payday loans. Instead, focus on making the most of the money you earn each month with monthly budgeting and shopping around for best deals.

A few simple changes to your life and your attitude to money could mean you have more to spend on the things you want in life.