Payday loans are just another financial tool. You use tools when they help you accomplish a goal more quickly, more easily and/or less costly than doing the job with other tools or without tools. The fact that there is a Payday loans industry and it is growing every day means that there must be some way in which the Payday loan tool expedites the achievement of financial goals. For a payday loan there is only one goal and that is to solve a short term cash flow shortage.
The problem that causes demand for payday loans is that payment of bills is often on a different schedule than paydays. The problem may be that your bills may be more than expected or there may be a bill that was unexpected such as a car repair. The problem may be that the last payday was smaller than expected due to sick days or bad weather preventing you from going to work. The result is that for a short period (less than 2 weeks or a month) you will spend more than you make in income.
The Standard Solution:
If you have some contingency savings, you can borrow from them to tide you over. You make room in your next payday to replace your contingency savings.
If you have no contingency savings but you have a credit card with some limit room, you can borrow the money in a cash advance from your credit card or line of credit and allocate money from your next payday to pay that back.
If it is a matter of paying some bills late that may be an option. There may be some late fees or charges but you make sure that you allocate money from your next payday to pay the bills and the extra charges. If you have certain bills set to be paid by preauthorized debit you have removed this option from your financial tool chest. If it is for the rent you risk upsetting your landlord by paying the rent late.
All of these solutions are manageable if you have some wiggle room in your budget. The important thing to remember is to cut back in some areas of spending in your next payday period so that you pay back the money that you have borrowed from yourself. The short term cash flow problem can happen often to busy people so you need to keep yourself in financial shape to deal with spending or income fluctuations.
The Problem plus Complications:
When I was on much tighter budgets I swear that my old cars knew when I had money in the bank or a bit of a budget surplus. They would break down just because they could and I would have to use my extra money to pay to have the vehicle fixed. When this sort of thing happens all it takes is one or two more financial fluctuations to leave you short of cash. We all know that "things happen in 3s".
A very current complication is that the banks are rolling back lines of credit and credit card limits. This is a complication that takes away one of the standard ways of solving short term cash flow problems. You may have no savings and now your old standbys are taken away.
At the same time, institutions are adding additional service charges and increasing old service charges. NSF charges are high and you get hit by your bank and the depositor's bank and the depositor for charges. Banks and credit card companies are charging substantial fees for going over credit limits. Some are even trying to charge that fee if your interest charge takes you over your limit. The repayment and budgeting for repayment gets harder when the fees charged can add up to hundreds of dollars.
The Payday Loan Solution:
If you are going to run up substantial charges by paying bills late, add up the charges and compare them to the cost of a payday loan. If the Payday Loan option is cheaper then it is just good business to use this because it will save you money. You will have less to pay back when you next payday arrives.
One other factor that may affect your decision in favor of Payday loans is that it is fast. If you qualify you usually have your yes or no answer in seconds and the money is in your account by the next business morning at the latest. That allows you to take care of your bills and get on with your life. At some point this may have value and may justify a percentage of the fee.
You must be disciplined and pay your self back in the next pay period. If you have reduced your options to the point that a Payday loan is your best option you must learn this discipline immediately. The Payday loans contract is quite simple. You borrow the money now and you pay it back plus fees on your next payday. The end.
You then need to apply this discipline to your budgeting. You need to get control of your budgets to get your tools back in shape. You need to rebuild some contingency and other savings on your balance sheet. On the liabilities side of your balance sheet you need to reduce debt and credit card debt so that you can have some limit room on your credit facilities to help you through short term cash flow challenges.