Payday Loan Relief

Payday Loan Relief: Practical Solutions for Failure to Pay Back Payday Loan

Payday Loan Help
Payday Loan Relief

Payday loans are not a new phenomenon. In the early 1990s, the United States witnessed two situations that would create the opportunity for growth of payday lenders. Many young Americans were migrating from rural to the cities and other urban centers. Also, the US became home to many immigrants coming to seek for greener pastures.

With such a workforce, there was a huge appetite for payday loans to help the workers meet their needs in between paychecks.

At the time, banks were adamant and refused to lend people money unless they had substantial collateral. Just like that, some intelligent fellows saw that there was a need for short-term credit. They immediately stepped in to tap into the enormous market.

The payday loan viewed under a magnifying glass

From a financial perspective, payday loans are cash advances. Most of the lenders do not check your credit status. The motivation factor behind taking out a cash advance is that you may have money to see you through until the next paycheck. After obtaining the money, the only security you need to give is in the form of a post-dated check.

On the maturity date, the lender cashes your check and gets back their money. Mainstream banks too do have a similar product that they call direct deposit advance. However, because of issues involving lousy credit, no bank will lend you money. Your only option remains seeking assistance from a payday loan company.

When payday loans turn into a nightmare

Payday loans may end up accelerating you into hardship and unrecoverable debt. Once you get to that level, you need payday loan relief. Unlike other forms of mainstream credit, a payday loan tends to enrich the lender at your expense.

You may find yourself in a worse situation than the one you were in when you sought the intervention. Rick Settle, in a thesis report published in 2013, refers to a statement released by the Colorado State Government.

Settle observed that, at 52.4 percent of women make the highest number of borrowers. Also, most borrowers, at over 65 percent, are single..
With such an array of high-risk borrowers, firms in the payday loans industry resort to charging high interest rates. You see, the rate of default is also high, and these lenders must make a profit. Some go as far as 300% APR (Annual Percentage Rate). In layman terms, the APR is the cost you pay for the loan. An illustration will suffice: –

  • Let us assume that you have obtained a $1,000 through a payday lender
  • Further, assume that the lender charged you $200 while the loan is due in 14 days
  • Here’s what you will pay by the time the loan comes to the term:
    i. Divide $200 by $1,000, and the result is 0.2
    ii. Multiply 0.2 by 365; the result is 73
    iii. Divide 73 by 14, you get 1022
    iv. In other words: {(200/1000) x (364/14)} x 100 = 521.42

Payday Loan Lenders

The subject of payday lending is a thorny one with numerous states in the US seeking to ban operations. North Carolina, Maryland, and Arkansas are but a few examples. However, millions of individuals have no banking relationship with traditional banks. These make up 13 percent of all households in America.

In retrospect, the law requires that the unbanked population receive their wages via electronic transfers. From another perspective, the same category consists of Americans whose incomes are either low or moderate. Armed with their checks, and in need of cash, these individuals have little option but to visit pawn shops and outlets that offer check-cashing services.

For a certain fee, these outlets will cash personal, payroll and government checks. The cost can be anywhere between 1.5 percent to 10 percent of your check’s face value.

It does not come as a surprise, therefore, that there has been an increase in check-cashing outlets across the country. Numerous factors contribute to the growing numbers. You will notice that these facilities sell a mix of services that often attract clients. Besides, you can visit a nearby outlet at any time of the day or week. They sell: –

  • Copying services
  • Facsimile
  • Payment of utility bills
  • Phone cards
  • Stamps
  • Money orders
  • Lottery tickets

These outlets are worthy of mention since they are one of the most prominent conduits for selling payday loans. However, the cost is too high (between 213 percent and 913 percent). When seeking a short-term loan, you may not think much about the quoted fee. Wait until your rollover; interest rates jump astronomically.

Borrowers – the driving force behind the success of payday borrowing

The Center For Responsible Lending reckons that one percent (1%) of payday loans borrowers do so to pay one-off emergencies. They repay their payday loans in an average of two weeks and refrain from borrowing for at least a year. In 66 percent of the cases, borrowers have had over five loans in the past 12 months.

Conversely, 33 percent of the borrowing public have over 12 multiple payday loans in a year. Payday customers possess, on average, 8-13 loans annually. From these statistics, you can see why the payday industry is highly lucrative. Shockingly, borrowers having over five loans in a year contribute towards 90 percent of the revenue generated by lenders. Those with over 13 loans help the payday lenders create 56 percent of their total income.

By postponing repayment and letting it roll over, you worsen your credit problems. There is also the ever-present danger of getting into a debt cycle. Getting into such a trap only requires you to stop thinking about solving a short-term financial need and digressing.

You know too well that the advanced cash is meant to address an immediate need. You also know that you must pay back in the next payday. However, you let your guard loose and engage in chronic borrowing. Before you know it, you are taking more payday loans to pay interest and fees.

The payday relapse threat

Getting into a payday loan cycle starts innocently. You realize that you are having cash flow problems. Not even your credit card debt can offer some relief. Also, you try borrowing from friends and family members.

They too are not able to lend you money. What do you do next? After much thought, you reckon that a $250 loan from the payday store or website is not a bad idea. Besides, the $37.50 fee is due after two weeks. In all wisdom, you encourage yourself that once your paycheck comes out, you will pay back and be free of debt.

However, as fate would have it, the cycle duplicates. The two weeks approach, and before you know it, you have no money. To what does the situation translate? You cannot pay the first loan and as a result, must extend for a further two weeks. The fourteen days expire, and you consider going for an additional 14-day extension.

Remember, the amount in question remains $250, but you must pay another $37.50. You keep repeating this scenario for a year. By the time you get down to offset the accumulated fee, the amount has shot to $975 (i.e. $37.50 multiplied by 26).

When payday loan relief is needed

Having understood the payday loans background, you may now begin to see the outcome when the loan amount overwhelms, and you cannot pay. One thing you must always remember is that an overdue debt opens the door for complicated legal issues. Debt collectors start calling and giving you threats.

The pressure becomes unbearable, and if you are not a healthy person, you could soon begin to experience depression. Payday loan settlement attorneys are available to help you wade through the murky legal waters. Under the attorney’s guidance, lenders will think twice before placing any threatening calls. Also, a legal expert will use tact and other negotiation skills to convince your lender to reduce the loan obligation.

Credit counseling when you feel like you’re losing it

A credit counseling agency is another option you can pursue. What began in the 1960s has turned out to be of tremendous help to many. In the early 60s, while the credit counseling industry was in its formative stage, consumers had to travel long distances to meet their counselor. Today, there are numerous offices in every region where you can go for a face-to-face session. Others offer telephone counseling and lately, counseling via the internet. Professional advice for people facing payday loan problems has two objectives:

  • To assist you in lowering the debt settlement burden
  • Improve your awareness through the provision of skills in budgeting and other financial planning tools

The counselor aims to help you with advice while at the same time educating you on ways to handle money. Internet counseling has numerous advantages over face-to-face and telephone counseling.

  1. Convenient
    You can seek for and obtain help from home, work, on the road or anywhere else so long as you have internet connectivity. Also, this mode of payday loan relief cut costs considerably plus you do not have to travel unless you want. Besides, you decide when to begin and end your session.
  2. Organized
    Being in a financial crisis stresses you to the point where you lose traction over your finances. You end up with a poor memory of payment made in the past or your present income status. However, with online counseling, you have sufficient time to find and collect all the information you need.
  3. Confidential
    You could be hesitant to face someone and share your financial woes. Talking over the phone can also be a challenge to many borrowers. The internet presents an excellent platform where you can remain anonymous.
  4. Learning
    If you are a visual learner, you stand to benefit significantly from user-friendly websites. Besides, you can read the questions placed while thinking about your answers.

Debt consolidation – merge your debts and pay in small installments

Fortunately, you can ease out of the vicious debt cycle through debt consolidation. Just combine all the small loans into a single item of credit. Through this approach, you can merge all your payday loans, medical, utility bills and others into one loan. In the end, you get to pay a lower interest rate than what the fragmented loans attracted.

Instead of making separate payments on each loan, you only have one. Unsecured debt consolidation programs are an ideal alternative since, at this stage, you have no other form of collateral apart from your wages. The secured option requires that you give your car or home as security. In the latter case, when you fail to pay, you can lose the asset.

Payday loan debt relief is not an end, but a means to get the reprieve. The loan helps when you can no longer repay your credit card debt, payday debt, and other outstanding dues. With it, you can avoid filing for bankruptcy. Besides, you now ease off the pressure by paying in small monthly installments. Also, the number of lenders reduces to one. With reduced monthly payment, you notice that you have more cash at your disposal. Your life starts to improve, but you must be careful not to take on more credit before you have finished repaying the consolidated one.

Sign up for a personal loan

A credit union will comfortably give you a personal loan even when your credit score is not so good. By the way, you need a score of 600 and above to qualify. Besides, credit unions have got some of the lowest average APR rates in the lending industry. Once the loan comes through, go and clear the payday loan before bidding farewell to that mode of borrowing. However, there are things you need to watch out. Lenders make the availability of credit sound like a sweet thing, and there is nothing wrong with that. Like other forms of credit, personal loans come at a cost.

Credit unions, peer-to-peer lenders, online lenders, and traditional banks are all sources of credit that you can consider. Out of all these, credit unions are the most favorable. If you are a member of a credit union, you could get a loan at a reasonable rate when other lenders are charging you more. With a good credit score, you have high chances of getting a low interest rate. Besides, you need to make comparisons on the length of your loan. Most range from between three to seven years, but the interest goes up for a long-term credit facility.

Gaining a debt-free status is not a simple task. Remember, you are trying to heal from a payday loan that sucked you into a cycle. Fortunately, repaying a personal debt is more straightforward than managing the payday variant. While you work hard to pay off the new credit facility, you must also be careful to avoid the temptation that comes with the desire to go on spending sprees. Do not start considering taking another cash advance just because you have dealt with the previous one.

Self-motivated measures to clear your payday loan obligations

The structure of payday loans makes it almost impossible to avoid repayment. Once you are in, chances of getting out are near zero. Luckily, you can still get out of the loan trap. Success depends on your determination and the level of debt. Either way, you must adopt some aggressive measures aimed at cutting expenses.

Create a budget, analyze your income and expenses

Budgeting would be an ideal place to start. That simple money management tool that you learned about way back in school will come in handy. Creating a budget need not be a tough exercise. You can use a computer spreadsheet to list down all your expenses in a month. Pick a column and dedicate it to gather data on everywhere your money goes. List everything from utility bills, rent, cable TV, traveling costs and eating out at restaurants. Next, have another column for your income sources.

Cut down on or strike off unnecessary spending

After putting the budget in place, look at those expenses that you can postpone or eliminate. For instance, instead of eating out during office lunch breaks, consider carrying a packed lunch. Also, rather than paying the subscription fees to that movie service provider, you could cut down. Another measure may involve selling one of your cars and drive only one. Move to a cheaper house where the rent is lower than what you are currently paying.

Engage your lenders, negotiate with them

Make a bold move to visit your lender and request for an extension of the payment days, also referred to as extended payment plan. Through an EPP you get more time to repay your loan plus the vendor stops charging additional fees and interest. Besides, the lender will not engage the services of a collections agency. Do the same with other forms of debt such as auto loans, credit cards, and student loans. Talk to them and bring up the subject of debt restructuring. Use the money saved from the reduced monthly payments to reduce your payday loan. Avoid falling for the notion that since you have more cash at your disposal, you can engage in other forms of spending.

Go to your friends, draw-in your family members too

Family bonds are always tight making this one of the best options for obtaining money to pay a lender. Later, you can repay the family for their assistance. The same case applies to friends. Neither your friends nor family members will charge you interest for a payday loan they are helping you clear. However, do not burn bridges by refusing to pay them back. You never know when you may need their help again.

Conclusion

Payday loans are ideal credit instruments for emergencies. If properly managed, you can offset the necessary expense, pay off the loan and retrieve your check from the lender. Problems emerge when you fail to pay and start rolling the loan over. You will end up paying more fees than the borrowed amount.

Circumstances do occur that make it difficult for you to offset your loan. In the panic, you go and get another advance to pay fees on the first one. Before you know it, a third and a fourth loan are in tow. There is hope in the future and a solution to your predicament. The good news is that you can still learn how to control your finances.