The vast majority of individuals who take out payday loans do so because of a financial emergency or the fact that their paycheck doesn’t last from one week to the next. The problem isn’t the loan itself, it’s the almost never-ending accumulation of interest and other fees that get the borrower into even more trouble.
This article is going to address payday loan debt, and give advice on consolidation and help you get out of it.
Who Uses Payday Loans And How Do They Work?
If you are currently trying to pay off a loan and feel like you’re getting nowhere, you’re certainly not alone in your struggle. Based on information provided by PEW Charitable Trusts, more than 12 million people take out multiple loans annually… some as many as eight per year. When you take into consideration that each of these loans average approximately $375, with an additional $500 or more in interest, these numbers translate into a great deal of (uncalled for) debt.
What’s even more astounding is the fact that over 65 percent of the same borrowers take out the loans to pay for things such as food, utilities, mortgage payments or credit card bills. Since all of these things are reoccurring, a better solution might be to create a monthly budget and stick to it as best you can.
Here are a few more unsettling facts about payday loans and the individuals who use them:
Payday loans came to be in the 1990s. Today, there are thousands of storefront and online lending venues, which generate approximately $27 billion in loans per year.
Fees on repeated loans generate more than $3.5 billion annually.
A high percentage of borrowers admit that if taking out a payday loan was impossible, they would make a more concerted effort to cut down on unnecessary spending or even get a second job.
The average borrower remains in payday loan debt for more than seven months out of the year. It can be very difficult to stop payday loans from mounting up.
At one point, there were two storefront lending locations for every Starbucks coffee shop.
There is good news, however, voters across the country continue to vote against triple-digit interest. This has resulted in several state laws, which place a double-digit cap on interest charged.
Now that you’re more aware of who takes out these loans and some of the reasons for doing so, it’s time to talk about various ways to get out from under payday loan debt. It won’t happen overnight, of course. But, anything you can do to shrink the debt in the fastest amount of time possible is to your advantage. Don’t give up hope!
The Truth in Lending Act
The Truth in Lending Act is a federal act that requires lenders to disclose the total cost of a payday or traditional loan. Unfortunately, these disclosures don’t mean that much to borrowers who are facing a financial emergency and can’t get the money elsewhere. Payday loan companies are aware of this and typically cater to individuals who live paycheck to paycheck.
The majority of people who take out payday loans do so without considering the long-term consequences. What’s important, at the time, is covering their emergency debt.
Help With Payday Loan Relief
This following is some advice on how to get out of payday loan debt. Finding payday loan debt relief can be tricky, and many people will struggle to ever eliminate their payday loans without using a consolidation company. However, the first thing you should try to do is follow the advice below.
Creating a Budget
You don’t have to be in debt, to reap the rewards of creating a budget. Better yet, it’s probably easier to accomplish than you think. It’s an excellent way to keep track of spending habits and it makes you aware of things you can cut back on.
Once you’ve determined where your money goes, it’s easier to make changes. For example, if you notice that you’re spending a lot of money going out to lunch or on weekend entertainment, cutting back on this type of expense will give you more money to pay down our loan debt faster.
Don’t go overboard and create a budget that is so strict you won’t be able to follow it. Allow yourself a little spending money, even if it’s only a few dollars a week. This way, you’ll be more apt to follow through and not give up because you never have any pocket money.
Seek Part-Time Employment
One way to pay off a payday loan faster is to seek part-time employment. Even working an extra 5 to 10 hours per week can make a difference. If you don’t want to work for someone else, consider working for yourself. There are numerous things you can do that don’t involve expensive start-up costs. This includes things like:
- baby or pet sitting
- cleaning services
- desktop publishing and/or creating resumes
- direct sales
- freelance writing
Remember, the more you can pay toward the principal of the loan, the quicker you’ll pay it off and the more money you’ll save.
Special Help from Military Personnel
Members of the military are protected to some extent, when it comes to exorbitant fees associated with payday loans. Any loan taken out after October 1, 2007, cannot have an APR higher than 36 percent. This is a relatively low rate, considering that most payday loans have a interest rate of 300 to 500 percent.
In addition, payday loan lenders cannot require the use of a check or access a military borrower’s bank account, in an attempt to recoup payment. These are federal laws mandated by the Department of Defense.
Whether you’re in the military or a civilian, it’s important to make sure that all of your payday loan payment deductions are authorized. In the event that your account is debited without your permission or in the incorrect amount, contact your banker. Provide a copy of your loan agreement and ask what can be done to prevent unauthorized deductions from occurring in the future.
Using a Payday Loan Consolidation Service
More and more consumers are seeking the assistance of payday loan relief services, to help eliminate debt. One of the most popular services is consolidation. The great thing about consolidation assistance is the fact that it covers almost all types of debt, except mortgages, car loans and secured personal loans. Real payday loan help can be a game-changer.
If you have too many payday loans, this is another great option, as the consolidation will turn multiple payday loans into one single, manageable debt.
Before you choose a consolidation company, it’s recommended that you research several of them and go with the one that best suits your needs. There are, unfortunately, very few unbiased payday loan consolidation reviews online, which is why we now work directly with a top company.
You’ll find that some companies have in-house debt counselors and debt negotiators, while others refer you to vendors in their network. Whichever you choose, it’s that company’s job to help you decide the best strategy to take care of your outstanding debts.
It’s important that you work with a company that adheres to the guidelines of the Federal Trade Commission. This helps to ensure that they are an accredited business.
At this point, you’re probably wondering how a debt consolidation company works. Typically, counselors contact creditors in effort to lower your interest rates and/or reduce any late fees and penalties that have been added to your accounts.
Some companies require you to enroll in a debt management plan, after reviewing your income and expenses. These plans are usually put into place for 3 to 5 years and require you to pay a monthly payment you can afford. The monies are split up between all of your creditors, in the increments they’ve agreed to.
Depending on the state in which you reside, the plan may or may not have an effect on your credit score. But, even if it does, it won’t have as much of an effect than making payments late and racking up extra fees that you can’t afford.
Obviously, in order for debt consolidation to work for you, your monthly payment should be less than what you’re currently paying. This includes all payments to your creditors and the payment to the consolidation company combined.
In the event that your consolidation loan payment is secured, it’s imperative that you make sure you can really afford it before initiating the paperwork. The last thing you want to do is lose your assets for failure to keep up with your payment.
Here are a few additional tips, in regard to debt consolidation or settlement companies, to keep in mind:
- never pay a company excessive fees before you’re sure that the creditors are willing to accept the terms offered
- request that your funds are placed in a FDIC-insured account
- make sure that you have the ability to agree with the terms the consolidation company makes with each of your creditors
If at all possible, ask for client testimonials before making a commitment to sign-on with the consolidation company of your choosing. Positive comments are a good indication that these counselors will do all they can to help you eliminate your debt in the fastest and less stressful manner as possible.
State Attorney General/Federal Trade Commission
Obviously, when it comes to paying back a loan, no two borrowers deal with the exact same set of circumstances. Should you fall behind on your payment, it’s no secret that the payday loan company will immediately do everything in its power to recoup their losses.
It’s totally up to you to seek assistance via a loan consolidation service, etc. But, if none of the aforementioned suggestions work for you, you generally have one last alternative.
It doesn’t cost anything to contact your state Attorney General and/or the Federal Trade Commission. Depending on where you live, there may be laws put into place that protect you from being charged excessive amounts of interest , as well as laws that prevent these companies from harassing your friends and relatives or calling you work in attempt to collect the debt.
The worst-case scenario is bankruptcy. Many consumers are unaware that payday loans can be included in a bankruptcy. Some unscrupulous payday loan debt collectors try to convince borrowers otherwise, in an attempt to collect payment. Don’t let them fool you or threaten you in any way.
How To Get Out Of Payday Loans – Just Avoid Them Going Forward
In the future, before taking on the burden of a payday loan, consider the following options. Chances are, it will take a few extra days to come up with the money you need. But, the interest and fees you’ll save makes it well worth it. Payday loan debt settlement can be so difficult to achieve, even with debt assistance, it’s often better to just avoid them altogether, and try the following instead:
- have a garage sale
- ask family members for a loan, offering to pay interest
- pawn collectibles or expensive items
- get a second job or ask your employer if you can work additional hours
- get assistance from a reliable credit counseling service
- use a credit card, only if it’s a dire emergency
Once you eradicate this high interest payday loan debt, try to save a few dollars out of every paycheck for an emergency fund. Even $5 to $10 a week adds up, when you don’t touch it. Should an emergency arise, you’ll have a financial cushion to fall back on. Your bank account and your overall health will thank you for it!