Payday loans are marketed as tempting, quick cash financing, especially for cash-strapped people. But borrowers, beware! Unless you know the pros and cons of payday loans, you might end up in the payday debt trap cycle.
Every year, there are approximately 12 million Americans that use payday loans. Payday loans have continually been promoted as the most convenient and fastest way for people to access cash between paychecks. Since lenders would dangle enticing offers of immediate cash and often no credit check, those who usually fall prey are people who are desperately in need of quick money.
Unknowing of the cons of payday loans, the borrowers end up with loans with interest rates as high as 36%, resulting in a never-ending cycle of borrowing money and debt to make ends meet. Accumulated debt is one of the many upshots of being unable to make payments for a payday loan. And when you’re caught in a “payday debt trap,” it’s time to come up with a solution.
The Law Offices of Ronald E. Stadtmueller can help pull you out of this debt trap. One of the industry’s leading bankruptcy law firms, the Law Offices of Ronald E. Stadtmueller assist clients to get out of debt in San Diego, California, through professional consultation and legal services specializing in Chapter 7 bankruptcy, Chapter 13 bankruptcy, debt reorganization, debt discharge, and other general bankruptcy consultation and legal proceedings.
What happens if you cannot pay your payday loans?
Offers that say “quick cash” is often linked with a “catch.” And that catch is the repayment terms and period. Unlike traditional loans with longer repayment terms, a payday loan usually requires a payment period between 15 to 31 days from the moment the cash is given. Because of the shorter timeframe, if the borrower has insufficient money on hand, a payment default tends to occur.
If a borrower cannot pay in time, extra charges would be added on top of the amount borrowed. There would be overdraft charges, bounced check fees, collection fees, or the lender will use a third-party debt collection agency, and even the possibility of court fees if the lender decides to go to court for payment settlement.
Ultimately, all of these can negatively impact your credit score. Any unpaid payday loan can stay up to seven years on your credit history, making it difficult to secure any future financing.
What can you do to get out of the payday loans cycle?
Although a payday loan cycle may seem tricky to escape, it is possible to get out and be free from the vicious debt trap. Below are some top tips for that financial freedom from payday loans. Choose the best one that gives you maximum debt relief and resolution.
Payday Loan Consolidation
Consolidating all existing payday loans into one personal or alternative payday loan is one way to ease the burden of paying multiple loans. Also known as debt consolidation loans, all payday loans are grouped and are paid off in a lower-rate installment payment plan.
Consolidating all payday loans into one can give you an extended repayment period that is much more manageable and easy on the pocket. Plus, it helps eliminate the overwhelming feeling of facing too many debts to pay.
Extended Payment Plan
An extended payment plan (EPP) is what it is – it stretches the loan’s payment period, allowing the borrowers more time to pay off their existing payday loans without incurring additional fees. Lenders would work with borrowers under this payment scheme to enable borrowers to make timely payments, compared to not getting any payment at all.
Put in extra cash to pay off payday loans
One of the fastest ways to get rid of payday loans is to put in whatever extra cash you have on hand to pay off the loan. It may take time to clear off the debt, but every payment will be worth it once debt-free. Earn extra cash by working overtime, doing side gigs, or freelancing. Put in immediately any stimulus checks that you receive as a loan payment. And be sure not to acquire any debt during the process!