Why I should avoid Payday loans

Why I should avoid Payday loans

We all have bad months where the unexpected happens. And this is when we look to borrow some money to get us through the month. A very well advertised and often used option are payday loans. These loans lend you money on a short term basis to be paid back by the end of the month. These loans can seem like a attractive way to get through the month. But here is why you should avoid them!

  1. They charge very high-interest rates! Because of the high risk associated with these loans, the lenders often charge very high-interest rates which can hurt your pocket!
  2. Similar to point 1, the lenders often charge very high fees!
  3. They are only a short term fix, not a long term solution. A short term loan can provide you with cash flow. But you need to look at why you need the loan. Are you spending too much? Is your emergency fund to small? Or is this a completely unexpected event?
Image by Gerd Altmann from Pixabay

Here are are 2 ways to avoid needing to take one of these loans:

  1. Build an Emergency Fund! An emergency fund is an easily accessible, low-risk savings account that you keep for emergency purposes. This fund is often in the form of a savings or call account linked to your bank account. This account has usually has between 1-3 months expenses saved up for emergencies.
  2. Have some cushioning in your budget. Although this is not always possible, try to keep a small amount for unseen things in your monthly budget. This will help you cover small expenses without needing to dip into your emergency fund or debt.
Image by Steve Buissinne from Pixabay

Life is hard and financial decisions are difficult. And with so many adverts around that make things look great, you need to read the fine print to ensure you are not paying more than you should! Use my two tips to avoid them and in time you will be able to avoid Payday loans altogether.