Should You Use a Payday Loan to Pay Off Debts?
A payday loan is a small-scale loan, typically ranging from £50 to £1,000. They have high interest rates and you should only consider using one if you are certain that you will be able to repay the loan and its extra expenses by the time your next set of wages come through. Whilst this is an attractive solution and a seemingly easy way to secure some extra cash to help you through your month’s larger debts that you may have fallen behind with, it comes with its disadvantages.
In this guide:
- Should I use one to cover a greater debt?
- How should I manage my debt with a payday loan?
- How effective are payday loans for debt management?
- Is it worth it?
Should I use one to cover a greater debt?
When taking out a new loan to repay an existing loan, it is easy for your debt to start spinning out of control. Essentially, if you are already struggling with larger debts, you must consider whether you will plausibly be able to cover the cost of the payday loan and its interest a month later. Will your circumstances have altered? Are you expecting a larger paycheck than usual next month? If you aren’t, consider how this short-term solution will quickly become even more of a financial burden in the future.
Furthermore, there are multiple traps you can fall into as many payday loan companies offer monthly extensions or deferrals. Whilst this may seem like an alternative to having to pay back the payday loan within a month, this can ultimately lead to you having to pay back much more interest and other fees than you had originally planned.
You can get help elsewhere. Debt advice services offer confidential aid free-of-charge, regardless of your credit rating, and can help find you an alternative. However, if you feel like using a payday loan to cover the costs of your other debts is an advantageous strategy, there are many ways to make sure you keep on track of this too.
How should I manage my debt with a payday loan?
You need to make sure you choose a reliable lender. A responsible lender will not accept your application if it thinks your family will be worse off in a month’s time. In order to effectively manage your debt with a payday loan lender, make sure their terms and conditions are highly transparent.
You can also seek assistance from some payday lenders who are looking for those who are falling behind with debts. Leading charity Christians Against Poverty work alongside major payday loan companies to assist those struggling with debt management.
How effective are payday loans for debt management?
Managing your debt with a payday loan requires much consideration, and they are often not the best option. It is unlikely that a payday loan will erase a large debt, as their main purpose is for unique financial emergencies, such as a boiler breakage or an urgent car breakdown, the cost of which will be easy for you to cover when your wages come through.
Using this loan to pay off a larger debt encourages a less attainable end point to your debts.
Is it worth it?
The key consideration in all of this is whether all these extra loans are worth further complicating your already confusing chain of debts. Think. Would a loan that you can repay in installments from the offset be better suited to your needs? If so, it is not worth getting caught up in a maze of money borrowing and repaying. Keep your finances as simple as possible to stay properly on track.