We seem to be reading everywhere lately about the evils of the short term cash loan. The truth is that since the economic downturn lots of people are finding it hard to get credit from banks and other mainstream lending institutions. Coupled with this, the cost of living continues to rise while salaries remain stagnant, all of which means that more people find themselves short of cash towards the end of the month. The short term loan has a valid place in the market to meet these demands, and most of the time it doesn’t deserve all the bad press it gets. The problems typically only arise when people fail to pay off their loan by the agreed date. One wouldn’t expect to default on any other form of credit without some kind of penalty, so why should the short term loan be any different? The key to avoiding a cycle of debt is in effective budgeting.
The first step is to understand exactly what you have coming in and going out each month. It sounds like child’s play but it’s alarming how many people don’t have a proper handle on their monthly finances. First make a detailed and honest list of all your incomings and outgoings. Check it carefully and ruthlessly cut any non-essential items. These could include a gym membership you seldom use or a TV, telephone or internet package which could be reduced if you reviewed your usage or took the trouble to shop around. Insurance is another cost that can frequently be significantly reduced by just shopping around. Don’t automatically accept your annual renewals – companies are well aware how many people do this for sheer convenience and often increase their prices slightly each year. If challenged with a more competitive quote, many will match it. Utilities are another area where there are potential savings to be made. Try checking comparison sites to make sure you’re getting the best deal available. Do this for every regular expense, right down to your mortgage, and find out where you can make savings.
Are you paying off an old credit card debt at a high rate of interest? If you are lucky enough to have some savings tucked away, it makes sense to use them to clear debts which will likely be attracting a much higher rate of interest. However, assuming that you wouldn’t take out a short term loan if you had money in the bank, look instead at moving those credit cards to a 0% interest deal for immediate savings.
At the end of the exercise, your total expenditure should be less than your income by a reasonable margin. If it isn’t, you will struggle to pay off your short term loan and meet your other commitments and you probably need to start again from the top. Remember that it’s poor budgeting and living beyond our means that gets us into a cycle of debt so take control of your finances to secure your long-term financial health.
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