Payday Loans Debt Consolidation

How To Avoid Debt Accumulation Through Cash To Payday Loans

Since people are borrowing cash to payday loans despite having the knowledge about its extremely-high cost, it only means that they are either highly tempted to borrow such loans (because of the lucrative advertisements) or they do not have any cheaper and safer alternative. But, considering the very fact that 4 out of 5 payday loan borrowers often end up accumulating more debts that they are capable to repay, it is very important for you to understand how such debt accumulation happens and how you can avoid the same. You will find the following information very useful in this regard.

Not Understanding The Actual Cost Of The Loan

The way cash to payday loans are advertised, it never gives you an accurate picture

about the total cost of the loan. For example, most payday loan companies

never mention anything about the hidden processing charges, which can be as high as $10 to $30 on every $100 of loan issued to you. For example, if they approve a $500 loan to you, you are very much likely to get a check ranging between $450 and $350 only. But, your actual principal amount on paper remains the same – $500. Besides that, even things about interest rates are not described clearly in advertisements. For example, the advertisements might say that the loans charge only $40 of interest, which is mistakenly assumed as the total amount of interest. In reality, the small amount of interest mentioned in the advertisements is charged on every $100 of loan issued for a short period of fourteen days. If you are borrowing $500 for 3-4 weeks, the total amount of interest can be horribly very high. In short, this is how it happens in general – you apply for a $500 of loan, but you get only $350-$450 and you are supposed to repay around $750 to $900 on the due date, which is the day when you get your salary credit into yoyr account the very next month.

Not Evaluating The Capacity To Repay

Another crucial factor that causes debt accumulation through cash to payday loans is the inability of the borrower to evaluate his or her financial capacity to make timely repayment. In most cases, when people need money on an urgent basis, they tend to accept any loan offer that comes their way as long as it is promising them quick money. It is very important for you to understand that listening to your temptations to make financial decisions is never a wise thing to do. You must make your financial decisions on the basis of facts and figures. You must first do a thorough evaluation of your monthly income, expenses and other debt obligations. The idea is to find out whether you can afford to repay the loan on its scheduled due date. You must have an exit plan ready before you borrow a payday loan. For example, if you must take a cash payday advance, you can consider cutting down on other expenses so that you can have sufficient amount of money available in your bank account when your lender sends the check for collection or when they send a debit authorization request (whatever is applicable in your case).

The Cost Of Extending Repayment Period

Another hidden catch that causes debt accumulation through cash to payday loans lies in the seemingly attractive provisions of due date extensions. Most payday loan companies often proudly advertise about this provision that borrowers can always get their due date extended for another one month by making a partial payment or by paying a certain amount of money as extension fee. This provision looks attractive, but in reality, it is an unscrupulous attempt to trap borrowers into a vicious cycle of payday debt. When you opt for such an extension, you have to pay additional interest and other charges at the same high rate for another one month. A $500 of loan requires you to repay over $750 for just two weeks. If you extend it for four more weeks, you will have to pay over $500 additionally just in the form of interest and other charges. So, the total outstanding debt balance caused by such due date extension can be as high as double or triple of the original principal amount.

Taking New Payday Loans To Pay Off Existing Ones

A very common mistake that borrowers for cash to payday loans often make is that they take new payday loans to pay off the debts accumulated by previous such loans. This gives them temporary relief, but this strategy actually accumulates a substantially much higher debt for them. For example, you first borrow a $500, fails to repay it in time, gets a due date extension, fails to repay it again and then you borrow new payday loans of $1250 to repay the debt, it means you will have to repay over $2000 on the next pay day. The cycle of debt keeps on moving.

Now that you are aware of the basic reasons how debt accumulation occurs through easy cash to payday loans, you must make your financial decisions accordingly. Do not listen to your temptations. Always read the terms and conditions explained in the written loan contract thoroughly before you sign up for a payday loan.

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