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5 things to consider when taking out a payday loan

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A fragile economy, high unemployment levels, price inflation and not enough savings stored away are all the ingredients for financial troubles. It’s no secret that a lot of us have been there: living paycheck to paycheck, short of money for rent, gas and groceries and waiting desperately another week until payday.

When all resources have been exhausted – credit cards, savings and perhaps even selling some stuff – some might have to use a payday loan as a last resort. Although a short-term, high interest loan can be beneficial to tie you over for 14 to 30 days, there are a variety of elements that an individual should consider prior to making that decision.

Since the Great Recession began in 2007 and 2008, payday loan businesses have been popping up all over the developed world, which has many fuming because elected officials and members of the general public feel the payday loan industry makes its profits by taking advantage of those in a desperate situation. Heck, the issue has even become a major one in the Texas gubernatorial race.

With that being said, financial experts recommend to think about these five things before filling out an application for a payday loan.

How much?

Take a look at your immediate expenses, such as rent, utility bills and car payments, and determine how much you will need to tie you over until you receive your next paycheck. Instead of just taking out $500, you can determine the exact figure rather than paying interest on money you won’t even use.

What is it for?

Is this payday loan for rent, groceries or both? Are you late on your smartphone bills? Did an old household appliance break down that you need to repair or replace? Aside from how much you need, it’s also important to determine what you need the payday loan for exactly.

Who will you use?

Once you have figured out how much money you will need, perform your due diligence and determine which payday lender is right for you. The fees and interest rates vary from business to business so it would be prudent to do some research online and if you have any questions call the company itself and speak to a customer service representative.

Can you pay it back?

Great, you now have determined how much you will need and it’s likely your application will be accepted by the payday lender. Here’s an important question, though: can you pay back the money plus the interest allotted to your funds? If you can’t then it’s possible you could enter into a cycle of perpetual debt, though there are payday lenders that offer flexible installment plans. Be wise with the funds.

Multiple lenders

If your expenses are too much to bear do not even consider using multiple payday lenders. Instead of resorting to three payday loan establishments, consider cutting back on your cable, phone and Internet plans, think about consolidating your debt or get a part-time job to maintain your standard of living.

By using multiple payday loans, you risk owing these companies an astronomical sum of money because of the interest.

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