Payday loans can be of great help when you need extra cash in the middle of the month. They can help you sort out your urgent needs even when you do not have enough cash. However, it is easy to get stuck in a payday loan cycle. In fact, being caught in a debt cycle is the most common reason why people advise others against payday loans.
Applying for payday loan
It is easy to apply for payday loans since the entire process is online. Once you complete the application, the lender will approve your loan and the money will be in your account by the next business day. Since the entire process is simple and brief, many people find it easy to apply. After applying for it once, it is easier to access a loan when you another one next. You can even pay for one and apply for another immediately. Another thing is that the amount you can receive is higher with the next loan. This makes it easy for borrowers to take this loan and unfortunately, many people take out this loan every month because they become over-reliant on them. Eventually, the loan becomes even higher than their regular salary.
This becomes the case because payday loans attract huge fees and many people borrow for the wrong reasons. They borrow to take care of groceries and to take care of household expenditure. If you spend your payday loans on such things, you cannot make gains to be used for the payment of your loan. This becomes a debt that is difficult for you to pay.
It is uncomfortable and stressful when your loan is due and you cannot make payments. Lenders will start sending you messages and they will also be calling you. They may even begin a bank action against you. Even though defaulting on your payday loan is not a criminal offense and you cannot be charged for it, some lenders can threaten you to the point where you no longer feel safe.
Payday Loans Lenders: How to get out of payday loan cycle?
If you have given them access to your bank account as part of the payday loan agreement, they will initiate an automatic withdrawal. This attracts more fees if the process is unsuccessful. The lender will continue with this automatic withdrawal until it is successful. This can attract huge fees. This does not mean that you cannot get out of the debt cycle if you find yourself in one. You can rid yourself of the debt by doing these.
- Do not panic
Panicking may come naturally when lenders become aggressive towards you. Their endless call may make you uncomfortable when you pick up calls from new numbers. One thing you should know is that you are not alone in this. Many people are in the same situation. Many more people have been in that position and they have successfully gotten out of debt. When you manage to keep cool, you can easily make good decisions regarding your situation.
- Stop Borrowing
Even though this may be very difficult since you are reliant on it, you will need to stop accumulating debt. Many people resort to taking out loans from other lenders to sort out the current debt. Do not be tempted to do that. It may appear as though you are fixing your problem when you take out another payday loan but in reality, you are only adding up to the problem.
- Apply for Extended Payment Plan (EPP)
The laws on payday loan vary from one state to another. Hence, laws that apply in one state may not work in another state. However, if you are fortunate to live in a state where you can apply for an extended payment plan, you can apply for it. If the lender is a member of the Community Financial Services Association of America (CFSA). This association allows payday loan customers to extend their repayment period to about 4 repayment dates without paying fees or more interest rate. This means that the interest rate remains unchanged but you will have more time to repay the loan. You will not be contacted to repay the loan since you have not defaulted for it. If you find out that your state allows you to apply for an extended payment plan, you can follow the following guidelines to apply.
You will need to apply early. You should apply no later than the last business day before the due date. It is better to apply earlier. You should also present your application to your lender so that you can sign a new contract. If you applied at a physical location, you will need to go there with your application to sign the new document. If you apply online, you will need to contact your lender on how to sign a new contract.
- Consolidate your debts
You can also combine your high interest debts into a low interest loan. Although the debts remain unchanged, the debtor will save on interest rates. With debt consolidation, the consolidating company may decide to transfer your debt unto a new credit card. When the transfer is done, you will enjoy an interest free period on the new card. If you are able to pay before the period ends, you will save a lot on interest rates. The lender may also offer you a personal loan that will cover the total amount you owe. You will then pay off your debts with the personal loan. That means you will now make a single payment to the new lender. Interest rates on the new loan will be lower than your previous loans.
Although consolidation comes to mind when you want to clear your debts, it is not always recommended. Sometimes, debt consolidation only increases your debt. It is prudent to make your calculations. You should be able to save some money on interest rates. You should also check the amount you will pay as fees. The fees should not absorb the entire amount you will save on interest rates. If you realize that the amount you get to save is small or you do not get to make any savings at all, you are better off without the loan consolidation. There are several other options you can consider. When you want to consolidate your debt, you should look for options. Some lenders offer lower rates. Make sure you look for the best offer. You should also note that debt consolidation may keep you in debt for a longer period.
- Apply for payday loan debt settlement
Payday loan debt settlement allows you to settle your debt by paying less than you actually owe. The first step to doing this is to check the total amount you owe. You can see this from your credit report. Opting for debt settlement allows you to stop paying your loan for some time in order to accumulate funds to pay a lump sum. If you are uncomfortable negotiating with your lender, you can get the services of a settlement company. These companies can negotiate on your behalf. They will propose to your lender that they should accept a lower lump sum as payment for the debt, or develop a better payment plan for the loan. Before you proceed with payday loan debt settlement, you should check with your state payday loan law. While the negotiations are ongoing, the settlement company will advise you to stop making payments to the lender. You will now make payments into an account that is under your control but administered by a separate entity. If the creditor agrees to the settlement, you will accumulate funds in that account and then you will use it to pay for your debt.
Debt settlement is a good strategy for clearing payday debts but it must be considered with caution. This is because you will end up with more debts if the creditor does not agree to the loan settlement. You may end up paying penalties for missing payments. There is no guarantee that the creditor will agree to a settlement plan. Unfortunately, even if your entire debt is not settled, you will still pay fees. Most settlement companies charge a percentage of the amount you will pay on interest rates. Even if you have six debtors and only one agrees to the settlement, the settlement company will still charge you fees. You should also note that debt settlement can negatively impact your credit score. A lender may report to your credit reporting company when you stop making payments and the missed payments will damage your credit score further.
- Credit Counseling
You can also opt for credit counseling to clear your payday debt. When you want to choose a credit counseling company, it is important to consider the following. Check the accreditation of the agency, it should be accredited by the National Foundation of Credit Counseling. You should also check the rating of the agency at the Better Business Bureau. It should at least have an A- rating. You should also be comfortable with the counselor since you will be discussing your finances with him or her. Credit counseling is a free service offered by non- profit organizations. The agency will assign a credit counselor to you. The credit counselor will help you to review your credit report, budget, debts. To get solutions that are really beneficial to your financial situation, you should present all the information regarding your financial situation to your counselor. The information should include details of your assets, debts, income, and monthly expenses. The credit counselor may suggest a debt management plan depending on your situation. With debt management plans, the credit counseling company will work with your creditors to develop a good payment plan for you. You will then make deposits into the credit counseling company’s account each month. They will then make payments on your behalf. You should note that credit counseling is a free service, however, you will pay for debt management plan services if you need one.
No one wants to file for bankruptcy but if you have no other option, it is better to file for it early. Individuals can file for chapter 7 and chapter 11 bankruptcy. If you have a lot of assets, it is better to file for bankruptcy under chapter 11. Chapter 7 is ideal for lower income people who do not risk losing a lot of assets. Before you file for bankruptcy under chapter 7, you will need to analyze your debt. Chapter 7 bankruptcy cannot clear debts such as child support, taxes, alimony, and student loan. You will also need to determine the properties that will be exempted during the process.
When you file for bankruptcy under chapter 7, you will lose your assets but you can check to see the assets you can keep. The amount of property that will be exempted from bankruptcy depends on the state you live in. Generally, properties that are not exempted include a family heirloom, cash, bonds, stocks, expensive musical instruments, unless you are a professional musician, a second house, a second truck, collections of stamps, and coins. Properties that will be exempted include reasonable clothing, pensions, household appliances, a part of unpaid wages, unemployment compensations, social welfare, social security, compensation received for damages against personal injury, jewelry up to a certain value, motor vehicles up to a certain value, and household appliance.
To file for bankruptcy, you will need to file a petition at the court. You must also undergo a test to see if you are eligible for a chapter 7 bankruptcy. This test is called a means test. The test compares your income with the States median income of a family size that is equal to yours. If your income exceeds the States median income, you will not be eligible for a chapter 7 bankruptcy. You will also not qualify for bankruptcy if you had a bankruptcy discharge within the last eight years. You should also not have a recent bankruptcy dismissal before you apply for a chapter 7 bankruptcy.
When you apply for this type of bankruptcy, you will need to receive credit counseling. The counseling should be offered by a government-approved credit counseling agency. You should receive the credit counseling at most 180 days to the bankruptcy discharge. You are also expected to receive a financial management course as part of the credit counseling. Although credit counseling sessions are free, they may charge you for the two-hour financial management course. You should note that it is important to receive credit counseling when you apply for bankruptcy. Failure to present proof of credit counseling within the agreed period will lead to the dismissal of your case.
You will be assigned a trustee after filing the petition. A meeting will be held between the creditors, the trustee, and yourself. They will ask questions concerning your financial situation, and you will be put under oath during the process. The meeting will be held between 20 to 40 days after the petition has been filed. It is important for trustees to ask questions during the meeting. This is to ensure that the debtor is fully aware of the effects of discharging bankruptcy on their credit history. The debtor is also expected to know that he or she can file for bankruptcy under another chapter. He or she is also supposed to know the effects of receiving a discharge. The trustee is expected to educate the debtor on all these topics.
When all parties are satisfied with the entire process, the court will issue a discharge order. The non-exempted assets of the debtor will be liquidated to pay off his or her debts. The court can revoke the discharge if a US trustee, the trustee, or a creditor requests for it to be revoked. If any of these parties find out that the discharge was obtained through fraud, it can request for chapter 7 discharge to be revoked. For instance, if the debtor fails to report accurate information on their assets. If any of these parties find out that there was a property the debtor failed to report on, they have good reasons to revoke the discharge.
Chapter 13 bankruptcy allows people with regular income to develop a payment plan for their debts. An individual can only be eligible for chapter 13 bankruptcy under certain limitations. The unsecured debts should be less than $394,725 and the secured debts must be below the $1,184,200 limit. You will need to first file a petition at the bankruptcy court. A trustee will be assigned to you when you file the petition. The debtor is expected to file a schedule of income, expenditure, schedule of assets and liabilities, schedule of executory contracts and unexpired leases, and financial statements. You will pay fees when you file for bankruptcy. Under the chapter 13 bankruptcy, you will pay fees including administrative and filing fees.
The debtor is expected to file a payment plan within 14 days after filing the petition. The plan must include a fixed payment that will be made to the trustee. The trustee will then distribute the payment to creditors according to the plan. There are three types of claims – secured, unsecured, and priority claims. Secured claims are the debts that have been backed by properties. Unsecured claims, on the other hand, have not been backed by properties. The priority claims are the claims that have received special status through the bankruptcy law. Some of these include some taxes and fees that are charged during the bankruptcy process.
The debtor does not need to pay the entire amount that is recorded under secured claims as long as he makes payments with all his or her projected disposable income over a period. The creditor should also receive enough to cover the amount he or she may receive if the debtor’s assets are liquidated under chapter 7. The debtor is expected to pay priority claims in full, however, the payment can be less if a priority creditor agrees to receive a smaller amount. If the debtor does not want to lose the property securing the secured claims, he or she is expected to pay an amount that is at least equal to the value of the property.
The debtor is expected to start making payments to the trustee within 30 days after filing the petition. He or she should begin payment even if the payment plan has not yet been agreed on. If it turns out that a secured payment is due around that period, the debtor is expected to make adequate payments directly to the creditor. Within 45 days after the meeting with the creditors, the bankruptcy judge must decide whether the payment plan meets the standards for confirmation set by bankruptcy law.
Once the plan is confirmed, it binds the debtor and the creditors. The debtor must make sure that the plan succeeds by making regular payments. The chapter 13 discharge is complex and may require the services of a legal counsel. The debtor will, however, be discharged after all payments under the plan has been made. The entire process takes between 3 to 5 years.
Payday Lenders: Payday Loan Cycle
It easy to get stuck in a payday loan cycle. It is, however, easy for you to get out of the cycle. Make sure you do not get stuck in the cycle again. Stick to your budget and make sure you do not overspend. You can also create an account and save towards emergencies. This will help you so that you do not need to apply for payday loan when you encounter an emergency.
When you realize that you are beginning to constantly rely on payday loan, you should take action. Do not wait until the interest rates pile up and make the debt extremely high. You should also not wait until the lenders start calling you before you take action. When you do sometime about your situation early, you can curb the problem before it grows bigger. If you get to a point where you need to use payday loan, you should also remember to use payday loan only as a short-term financial solution. Using it as a long-term financial solution is expensive and it will send you back to the payday loan debt cycle.
George worked in the credit bureau for five years before switching careers to become a speaker on credit score improvement. He is passionate about helping people get ahead with improving their bad credit and teaches people all the tricks he knows about debt consolidation.