Pay Day Loans a Stop Gap to Better Planning?

With increasing numbers of lower- to middle-income people in the United Kingdom using a pay day loan for emergency borrowing, questions are being raised on several fronts.

One is whether this is an economic indicator, with higher numbers ofcash advances  a sign of increasing economic stress?

Is it a sign that working people are voluntarily electing to not use credit cards, or that they are unable to get a line of revolving credit due to poor credit ratings?

Or has increased convenience – online pay day loan stores require far less time from the borrower than bricks-and-mortar stores of the past – made this a simpler transaction, perhaps one involving less stigma?

Credit and personal finance counsellors distinguish between two types of individuals who use cash advance financing: the one-time user, and those who chronically draw from a future paycheque and routinely end up paying the higher interest charges that result from loan extensions.

This latter category is more concerning, say experts. They are the individuals who should implement several key measures for achieving greater fiscal stability, as follows:

  1. Rationalize expenditures – Sit down and review all expenses over one, two or, better, three months’ time. Pay particular attention to meals eaten outside the home, which can be four to six times more expensive in restaurants and take-out shops. Telecom expenses can often be cut as well. Small lifestyle changes can make a large difference.
  2. Examine bill paying schedules and penalties – With a calendar, map out how much is due on which dates of each month. Extra fees, late payment charges and the like can add up to hundreds of pounds per year (often more).
  3. Consider additional or alternative employment – Even if you enjoy your current position, finding out what you may be worth elsewhere can be used in a discussion with your employer to get a salary increase.
  4. Commit to a goal, including adherence to a budget – Identify priorities, map out how that would affect you on a monthly basis, and include some form of savings (however modest that may be).

Following these four steps – and enlisting other household members in the new goals and budgets – can go a long way to minimising times of financial panic.

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