How to avoid taking out a payday loan

3.5 million people are expected to take out a payday loan in the next six months as cash-strapped Brits reach breaking point with their finances.
The latest research from insolvency body R3 found that 45% of the nation struggle to make it to ëpaydayí and instant loans are fast becoming a financial crutch they need to cover costs.
With this comes a growing number of ëzombie ë debtors as many can only afford to pay the interest charges on the debts, not the debt itself. This has caused significant financial problems for many pushing them further into debt.
The research found that out of those who have taken out a payday loan, 60% of them regret the decision.  A further 48% of people confessed that taking out a payday loan has made their financial situation worse and only 13% believe that it was beneficial to their finances.
On top of this, the highest levels of debt concern were recorded in the three months to the end of October. The research found that nearly two thirds of people are worried about their rising debt levels. This marks a 13% increase since Julyís figures.  Itís also much worse in the North East as a staggering 70% of people are worried about their debt.
ìThese are hard times and in the run up to Christmas, many will be tempted by a payday loan despite APRs of over 1,000%,î said Sarah Brooks, Director of Financial Services at Consumer Focus.
ìConsidering this is now a billion pound industry, regulation in this area is not strong enough and much more needs to be done to prevent consumers getting caught in spiralling debt.î
ìThe survey highlights large numbers of consumers who only ever pay off interest without touching the capital borrowed – this is a very alarming situation.î
Alarming as it may be, it is fast becoming a reality for many. No one wants to welcome new debt in to their lives in the New Year and so here are a few tips to avoid taking out a payday loan and getting yourself into debt.
Who use payday loans?
Avoid being targeted by payday loan companies by knowing your demographic. The Office of Fair Trading found that the typical borrower of a payday loan is a young male. He will typically be earning more than £1,000 a month and the majority of the time will not be married and have no children.
Because of the nature of payday loans, in most cases you cannot borrow money if you are unemployed and donít have a UK bank account.
Interest rates
Payday loans have extortionately high interest rates. Itís important to be aware of what you are paying for and how much you are being charged so you can look at cheaper alternatives.
Payday lending can be extremely expensive with charges of up to £30 per £100 borrowed. Some even have an APR of around 2,000%!
Interest can rapidly build up if payments are not made on time and soon become more of a debt than the original loan.  More often than not there are additional fees – such as paying more to have the loan within a shorter amount of time.
There is no legal limit on loan interest rates and this is why lenders can charge extortionate amounts.
You might also face similar charges if you turn to your overdraft. Some high street banks have been known to charge similarly high APR rates, or even higher for unarranged overdraft use. Brits could be expected to pay £200 in charges for going £100 overdrawn. With that in mind, it may be advisable to look into alternatives.
Affordable alternatives
If you are struggling to cope with the rising cost of living, you may need to borrow cash.  Staying out of debt for a long period of time is just not that easy for many and whilst one of the most obvious tips would be to stop borrowing, for many this is not an option.
Instead, look for cheaper borrowing alternatives.  See if you can extend your arranged overdraft facility with your bank. Going into the red without authorisation could see you incur charges which may match or even be higher than that of payday loans.
Credit cards can also act as a useful emergency cash tool.  You can often find deals with low APRs and 0% on purchases for a certain period of time. If used responsibly they can be more efficient and effective in the long term compared to the short-term use of a payday loan.
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Credit unions are also available to help out cash-strapped Brits. Whilst borrowing might not be available as a last minute emergency cash plan, credit unions do lend to high risk borrowers and have a much lower APR.
Five years ago the government made credit unions more flexible and have started assessing risk properly, lending to people without a previous membership or savings. 
If you are experiencing debt problems it may be worth seeking out professional help.
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