|By Chris Buchheit on May 19, 2010
Money that technically does not exist is hard to be spent – and yet you have to pay it back. Taking out loans is, of course, a common occurrence. When consumers buy a new house, it is fairly common for them to take out a mortgage.
However, loans are only ever a good idea under properly-budgeted financial situations. In short, will you have sufficient funds to pay back the amount of money taken out when the bill comes?
Several people are personally against the idea of loans for small amounts of money due to poor money-management, especially if the interest rate on them is as high as three hundred percent (About.com: Financial Planning). I refer, of course, to payday loans.
The amount of money required to pay back a payday loan starts out small, but because of the loans’ high interest rates, the amount of debt slowly balloons and often creates cycles that some people are unable to get out of.
So what are some ways to avoid payday loans? There are several fundamental things you can do to make sure you do not have to resort to them. First and foremost, prioritization is the key to good finances. For example, what is more important: paying the internet bill or the water bill? What’s more essential: getting every football channel or having power? That new TV or health insurance? While the answer is fairly obvious, people have different priorities, and these are questions that you, the consumer, will have to answer if you want to avoid getting trapped into a debt circle.
Secondly, keep a tight belt on your revenue and expenditures. In this economy, there is very little that is more important right now. Taking your priorities into account, be sure to budget accordingly, and make sure there is plenty of money left over. You never know when your car might break down, or something around the house might need repairing – all of this is important to consider. The point is to make sure you have plenty of money left over, both for “rainy days” and for general savings. It’s never too early to start saving for retirement, plus it will give you some extra money for recreation – as long as it is properly budgeted for.
In short, a good budget means you will not have to resort to consumer traps such as payday loans, which are never a good idea, and can only lead you into indebtedness.