The Money Jar Budget - Get Debt-Free

money jar

Getting into a payday loan trap is easy —the payday loan companies make it easy to get a loan until payday but the problem is, you can become ensnared in a web that feels all but impossible to escape.  How do you get payday loans paid off so you can free up more of your own income? It’s not easy once you’re ensnared but it is possible and the sooner you do it, the more money you’ll have to live on!

How payday loans work

Basically, you can borrow money against a future pay. The interest rate tends to be quite high. (Many payday advance companies have interest rates so high that it seems as if it’s ‘legal’ loansharking!). When your payday comes around, you can either pay the loan off and walk away, OR (here’s the dangerous part) you can pay just the interest on that loan to carry the loan forward. That’s where the trap happens because it’s much easier to just pay the interest and continue the loan.

Because the interest rates are typically so high, you leave yourself short if you pay off the loan. It’s far too easy to  take the easier route and pay interest and plan to pay it off ‘next’ pay.  Next pay turns into the pay after that and the pay after that and before you know it …it’s months later and you’re still running to the loan place each pay to hand them a sizable chunk of your money.

Multiple Payday Advance Dangers

The above scenario happens a lot. That’s what many payday loan places are hoping for because it’s much more profitable for them if you continue to pay them interest every two weeks rather than pay back your original loan.  And because so many of these places are out there, it is easy to carry multiple payday loans at a time. Why does that happen? Many find it so difficult to keep paying that interest payment every pay that their cash flow dwindles and they become even more strapped for cash so they feel powerless to do anything but take on an additional loan. Before you know…it you could be paying off hundreds a month and running around town every pay day juggling things to keep it together.

Here’s a pay scenario:

Ms Jones borrows $800 from the local payday advance store for 2 weeks. At the end of two weeks, she pays them $130 in interest to keep the loan going. It’s either that or give them $930 —which would wipe out more than 2/3 of her paycheck. She does this again two weeks later and is really having trouble making ends meet. So she runs to the payday place two blocks away (or finds an instant online payday place that pays instantly via PayPal) and borrows $600 so she can make rent.

In two weeks she owes them $700 so instead she pays them $100 to keep that payment going for another two weeks.   Now, every two weeks she’s paying out $230.00. That’s $460 a month of her hard earned money that she’s just giving away.

How to escape the payday loan treadmill

If you’re running and running but never reaching a destination, you need to do something drastic — and quick! Here are some suggestions:

• Let the payday loan companies know you can’t continue the loan. You might have to open a different bank account and move your paycheck there. Some of them will put you on a payment plan. And this might hurt your credit rating but the temporary issue might be all you can do. When you get them paid off, don’t ever borrow another advance again.  Many won’t do a payment plan that doesn’t involve interest and penalties so this might not be the best option for everyone, depending on where you live and what your contract states.
• Bite the bullet, so to speak, and live in poverty for 2 weeks. Pay your full loan off and just suffer through being really poor for a few weeks. Live on Ramen noodles, leftovers in your freezer, and just get through it until next payday. It’s going to be tough, but to free up hundreds of dollars a month in interest fees will set you free!

These payday advance companies look like they exist to get you out of a jam but in reality, they’re happiest when you’re on that treadmill, paying them money every two weeks for the rest of your life. Many will offer loans to seniors on a fixed income or people on a disability pension. How on earth are those people going to get out of the trap? The temporary break typically only lasts a brief moment before the reality of mounting debts and incredibly high interest rates set in. These loans are designed to get you out of a quick jam but the ulterior motive is to fleece you for as much of your hard earned money as possible. If you’ve never had a payday loan….find another way to get out of that jam.

Other tips: Start budgeting for a rainy day as soon as possible and setting money aside for unexpected expenses. Live on cash instead of credit and you will eventually be financially secure. Delve deeper into this blog and check out the money jar budget system. It’s a great way to help get out of debt and put money away for the future.

money jar

Budgeting involves at least two areas: fixed budget and variable budget. It’s easy to see what your fixed expenses are but how do you know what the right amount of money is for your variable spending budget?  First, you need to sit down and determine which of your expenses can fit into that budget.

What is a variable expense?

If the amount of money you spend on something varies from month to month, this is an amount of money that you have control over spending. Examples would be:  food, clothing, entertainment, and gifts. Fixed expenses might be things like your car insurance, your rent or mortgage, your car payment.

A good way to analyse this spending is to look over the past six months of your bank statements and see what you’ve been spending. Creating a spreadsheet and looking at these numbers can be a sobering experience. This is going to be fairly easy if you spend a lot of your money with debit cards and credit cards. If you’re spending money with cash, you may need to track your spending over the next few months to help you analyse those figures.

By analyzing what you spend now and how that’s impacting your debt load, you can sit down and determine how to trim that budget.

Here are some variable budget trimming examples:

• Last month you spent $100 at Starbucks. That means you’re spending about $5 per weekday. Why not tweak the budget and only allow yourself $40 a month at Starbucks (or your favourite coffee shop). That’ll mean you only go twice a week. That $60 could top up a credit card payment and pay off that high interest credit card faster.
• Two months ago you spent over $200 on clothing. You need a clothing budget for each month but perhaps you can set that at $100 each month. In that case your weekly money jars or envelopes would have a $25 clothing fund. If you’ve been living in overdraft, that extra $100 could prevent that from happening.
• Your family ate out at restaurants 7 times last month and this totalled about $200.00. For this month, you’ll only eat out twice and allocate $70 (one $20 fast food meal and one $50 slightly nicer meal). What will you do with the extra $130?

Carefully looking at your spending is the best way to begin saving money and paying down your debts. You can still treat yourself to things you like and enjoy but by making decisions about the money you spend, you’ll have much more control over your finances and your financial future!

Debt Management Tips - What If You’re in Over Your Head?

Debt Management Tips - What If You’re in Over Your Head?
By Chris Jenkinson

Debt management is something that’s a vital aspect of being an adult. Some people consider the basics of this as they emerge into adulthood but in this day and age, many have to learn the difficult way — through trial and serious error. Your debts can take over every aspect of your life and your happiness if you aren’t careful. But sometimes this happens even if you’re careful, too.

In the current age, far too many people live beyond their means and as a result, face the consequences of struggling with mounting debts. More people than ever are just a payday or two away from having their utilities switched off, losing their car, losing their house, being evicted, and even having to file for bankruptcy. If they suddenly have to be off work, lose their job, or have a sudden unforeseen expense, the consequences can be financially catastrophic to them.

Overspending Problems

More people than ever spend more than they earn. Due to credit cards, bank overdrafts, and revolving lines of credit, more people than ever do not even realise just how much they owe to creditors. Many live in a cycle of borrowing from Peter in order to pay Paul and live on credit. They don’t see their wages because they get absorbed by fees. Many find themselves in serious trouble when they suddenly hit their credit ceiling and cannot borrow or charge any more. That’s when the harsh reality sets in.

Economic Problems

With the currently volatile economy, it’s happening to more hard working people than ever. Even if you don’t overspend, you could be just around the corner from financial ruin if you’re on a ‘just in time’ schedule with nothing put away for a rainy day.

Here are some tips to help you deal with a problem with debt management:

• Go on a strict budget. Determine precisely what your expenses are and don’t stray from them. This means that you need to stop spending on anything that’s not an absolute necessity.

• Have a savings account. Once you get accustomed to putting away a % of each pay, you won’t miss the money. Then, if you get into trouble, you have savings to help you rather than having to rely on credit.

• Analyse your expenses to see if you can save money by downgrading, changing service providers, or eliminating expenses that aren’t essential.

• Pay more than the minimum payment and pay bills on time to avoid late fees.

• Speak to your creditors if possible. Try to make payment arrangements with them. Many will waive interest, lower your payment, or give you time to recover by deferring payments. Ignoring the creditors is the worse thing you can do so it’s important to face your debts as soon as possible so you can move forward without worrying about those consequences.

• Get debt counselling. You may have alternatives to filing as bankrupt and debt counsellors can help you manage your debts in many different ways. They can help you make arrangements with your creditors so that you can make a single payment that is split amongst your debts. This can give you breathing room to get on track toward a more profitable future.

Just because things are difficult today, that doesn’t mean you can’t look forward to a bright financial future. Many successful people have been through difficult times. Learning from your financial difficulties can help you with debt management so that you can make decisions and plans to secure your finances going forward.

Do you have a problem with your finances? If so, debt management services that can help you get back on track could be just a click away. Regardless of your situation, you can get valuable tips and help with your finances.

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