Payday and short term loan alternatives

November 21, 2017

Bills | Insolvency Help

Unexpected costs can come at any time of the month and if you’ve not got an emergency fund set aside to meet surprise costs and bills, there are sometimes limited options to find enough money to pay these.

If you don’t pay your bills on time (regardless of whether you were expecting them or not) it can have a negative effect on your credit rating or it may be that you have no real choice other than to pay for unexpected costs e.g. central heating fault, so no hot water during the winter.

If you’re thinking of taking out a payday loan or another short term solution, it’s important that you really understand what you’re letting yourself in for. Although the loan companies’ adverts seem friendly and informal, a payday loan can quickly turn nasty and expensive if you’re not extremely careful.

If you find that you need such loans to cover normal household and everyday essentials, short-term, high-APR solutions are not a good idea.

If you’re struggling to pay for recurring expenses like rent, car repayments and utility bills, it’s time to call in a debt advisor and get some help planning your budget.

Payday loans should not be used for normal monthly costs and really should only be used, if at all, for emergencies. Such loans can be a useful tool if used in the appropriate circumstances and where you can repay them quickly. Over the long term though they are an incredibly expensive and can quickly spiral upwards.

If you are in a desperate need of money to pay your expenses, for whatever reason, it’s important to consider alternative sources of money to help you through the month. Below we discuss five alternative options or sources to consider, which can be substantially cheaper than payday loans.

However, it’s important to stress that none of these are long-term solutions. If you are consistently struggling to pay your bills, it’s important you seek professional advice.

Can you choose not to spend the money or delay it?

It is important to be realistic when talking about the reasons why people take out short term and payday loans. Yes, as in the adverts, it is often to meet unexpected and unavoidable costs. However, a significant number of the clients we have helped with insolvency and who had unmanageable levels of payday loans had used the loans (at least initially) to fund discretionary costs such as clothes shopping, Christmas presents, foreign holidays, socialising etc. The ease and speed of obtaining such loans (often just a few minutes via a mobile app) is simply too tempting for some people.

Before deciding to take out a payday loan ask yourself whether this really is an emergency rather than a 'nice to have' and whether you are honestly confident in your ability to repay it in full in the short term without rolling it over into a new loan at the end of the next period.

Credit Cards | Insolvency Help Credit card

If you’ve got a credit card, you might consider using this as a short-term solution. But you’ve got to be careful as they can be very expensive, especially if you are only making the minimum payment every month.

Make sure you understand the fees and don’t use more than you’ll be able to pay back over a relatively short period of time.

If you don’t repay your credit card fees as planned, the charges can be exponential.

The average APR of Standard Credit Cards is 20.34% APR (Allied Irish Bank, Bank of Ireland, Ulster Bank of Ireland, KBC, Permanent TSC ICE, Citibank). That on it’s own can accumulate substantially if you’re not careful. But a short term loan, such as Wonga can sometimes have a mind blowing 1,509% APR!

Friends and family | Insolvency Help Family and friends

If you are in a situation where you feel comfortable asking family or friends to lend you money — and if you are confident that you will be able to pay them back — then asking for a personal loan might be an option.

If you do decide to ask a loved one or a friend, make sure you put the agreement in writing. Have a very clear plan of how much you owe and when you are to pay the money back. If the loan is long-term or for a larger sum, write down a schedule of agreed instalments.

Money is one of the things that can really rip friendships apart and cause family drama, so be careful to stick to the terms you’ve agreed.

Savings | Insolvency Help Ask for a salary advance

While it might not always be approved, asking for an advance on your salary can really help ease short-term worries, especially if you’re struggling with a surprising and non-recurring payment.

With salary advances, it’s important to remember that you’re elongating your wait until your next paycheck. Can you manage the next six or seven weeks on a reduced pay packet?

Also keep in mind that you can’t just ask for a salary advance every month so, as I mentioned above, you should only really do this if your expense is a one off.

If you’re struggling with recurring expenses like phone bills or rent, an advance on your salary can only really help you so far.

Arrange an overdraft

If you’ve got a current account with your bank, you might be able to get an authorised overdraft. Whilst it can be a pricey option, it is most often cheaper than using a payday loan.

Be careful not to let your debit card slip into the depths of the unauthorised overdraft as that can be very expensive with banks charging unauthorised overdraft fees and interest.

Debt planning | Insolvency Help Need help with planning a budget?

If you just need a little nudge and some help making up a budget, then there are plenty of amazing resources on the internet.

You can contact the Money Advice and Budgeting Service (MABS) which is a free service provided by the Government. Their telephone number is 0761 072000.

Need help getting out of debt?

Alternatively, if you are at the stage where you are having to take out new payday loans in order to repay existing loans and your debts are out of control, then it’s time to call in the experts! The quicker you accept that you are in over your head, and are willing to tackle the problem head on, the quicker we can help you. There’s no shame in asking for a little help, and we’re experts in getting people back on their feet. We offer free and confidential advice. Get in touch today and we’ll have a good look at how to get your finances back on track!

Insolvency Help is a trading style of 180 Advisory Solutions Ltd

Barry Stewart is authorised by the Insolvency Service of Ireland to carry on practice as a personal insolvency practitioner(authorisation number PB00282). Barry Stewart is also authorised to act as an insolvency practitioner in the UK by the Institute of Chartered Accountants Scotland.