Too many payday loans consolidation? Here’s everything you should know
Pretty much everyone can get a payday loan, but not everyone can quickly get out of a payday loan trap in the most affordable way.
With the price of living going up each day, so many low and middle-income earners find payday loans as an easy way out during emergencies.
While these loans may seem like the best thing during financial distress, getting out of their snare is always a daunting task for many borrowers.
If you are thinking of taking a payday loan, rethink that decision, and if you’re already chest deep in multiple loans, this article will offer you all the loan help you need.
Let’s dive in
Why is it so easy to get trapped in a payday cycle?
What if you have too many payday loans consolidation? Picture this scenario; let’s say you took out a loan of $500 payable in two weeks.
When your paycheck finally arrives, you need to cough out $600, which is the $500 principal plus interest of $100.
Remember you still have other bills like grocery, rent, health insurance, and other daily expenses to pay out from this salary.
You then begin to panic and wonder how you’ll get by to the next paycheck. And when an emergency hits like a car break down, you go back to the payday lender and decide to roll over your loan.
The lender then takes the $100 interest, but the $600 remains unpaid. By end month, you still don’t have the $600 to clear off your debt.
You then run to another lender because you cannot rollover your loan twice.
This cycle continues until it gets out of hand and before you know it, you are trapped in a debt cycle that is not only financially draining but emotionally draining as well.
The high-interest rates and short repayment schedules make it difficult for most borrowers to clear off their loans as fast as they’d wish to.
They, therefore, end up renewing their loans and accrue more fees and interest.
So how do you escape this debt trap?
It’s quite easy if you have never taken out a payday loan, don’t take out one, and instead look for alternative sources of cash if you need financial help.
Below are some reasons why you don’t need to take out these loans:
- There’s no guarantee that you’ll have the cash by end month
Taking out a payday loan with the hope that you’ll pay it back with your next paycheck is not a good idea.
If you don’t have that $500 now, chances are that you may not have it in two weeks time.
You may receive your paycheck, yes, but it could be tied up with nothing left towards your debt obligation.
You’ll then have no option, but to roll over your loan to the next paycheck, and that’s how the debt cycle begins.
- The costs may get out of hand
Payday lenders charge double interest rates and APRs, and they have structured these loans in such a way that they are so expensive and difficult to repay.
They’ll allow you to roll over your loans as many times as you want to as long as you keep paying the interest and loan renewal fees.
You’ll also be expected to pay in full by end month, and if you can’t, they’ll only charge a finance fee which does not reduce your debt in any way.
If you authorized automatic debits, they’ll keep withdrawing from your bank account even if there’s no money in it, and this will cause you to incur overdraft charges and bounced checks fees.
Without realizing it, you will have incurred more expenses than you intended to borrow.
- Leaves you vulnerable
Most the lucrative adverts you see are not from direct lenders.
They are usually from third party companies who sell your details to these lenders.
Once you fill out their application forms with your details, you’ll start receiving calls from several lenders selling you their offers.
- Some payday lenders are scammers and operate illegally
Despite the laws put in place to regulate the payday industry and to protect vulnerable citizens, some payday lenders still operate unlawfully and charge very high-interest rates.
They’ll lie to you about their charges, interest rates, and APRs to make you fill out their forms only for the truth to come and bite you later.
By then, you’d have signed the loan agreement form, and you will have no choice but to pay the loan amount in full.
- They’ll impact your credit score negatively
The truth is, if you apply for a payday loan, it means your credit score sucks.
If you fail to pay back the loan, your credit will deteriorate further.
Usually, when you cannot pay your loans, the lenders will forward your account to debt collection agencies.
The debt collectors will keep hounding you with calls and issues threats of a jail term to get you to honor your debts.
Some may even slap you with a lawsuit that’ll also cost you more than you anticipated.
If, you already have multiple loans, here’s the loan help you need to gain control of your finances once more:
- Make a list of all your creditors and how much you owe them
Before you begin paying off your loans, sum up the entire amount owed plus their interest rates.
This will give you an idea of all the debts you have and help you make a plan on how to clear them off.
- Pay off the loans with the highest interest rates first
Paying off the most expensive loans first helps you save some bucks.
Usually, when the interest piles up, it becomes even more expensive and difficult to clear off the loan.
- Make a budget and stick to it
The best way to monitor your income and expenditure is to make a budget detailing how much you earn vs. all your expenses.
It would do you so much good to scrap off unnecessary expenses to free up some cash towards your debt obligations. Make a sacrifice to only pay for necessities. You can always plan for special events like parties or vacation when you are debt free.
- Change your spending habits
The best way to get out of debt faster is to change your spending habits.
If you cannot do it on your own, seek help from a credit counseling agency. They’ll help you prepare a budget, advice you on how to reduce your credit utilization rate and how to live within your means.
Having the right mindset about money will help you know how to make it, keep it and even grow it.
- Save up some cash for rainy days
Life is unpredictable, and sometimes things happen when we least expect.
It’s wise to have some money in an emergency fund that’ll help you out when you are stuck.
You can always start small by saving at least $10 per week and increase the amount gradually.
Have this amount directly debited from your paycheck.
- Have multiple streams of income
To be debt free faster, you can do other jobs besides your day job to earn more money.
Find out something that you are good at and offer those services at a fee.
You can use the money you earn to clear off your debts.
- Instead of borrowing, put off expensive purchases until your paycheck arrives
No matter how tempting it is, don’t borrow to buy something that can wait.
Offers will always come, and those gadgets or clothes will still be there. It won’t hurt to put off the purchase until you get your salary.
- Don’t roll over your loan no matter how cash-strapped you are
Resist the temptation of adjusting your loans.
It will only prolong your pains.
You’ll end up with more debts than you intended to borrow because any time you adjust your debt, you pay renewal fee plus interest on the previous loan while the loan balance remains the same.
- Ask to negotiate before your details are forwarded to collection agencies
Some lenders are lenient and may agree to break your payment to flexible and affordable monthly payments.
Attempt to reach out to your lenders and ask if they can allow you to pay your debts in bits.
What if you still cannot pay off your debts despite doing your best?
As a borrower, you have a moral obligation to pay off the loan as agreed in the loan agreement form.
Sometimes, however, getting out of debt may be difficult no matter how much you try.
To protect yourself and your accounts when you find yourself in such a situation, here’s what you have to do:
- Revoke all authorizations you gave the lender
To protect your account form automatic withdrawals by the lender, you can contact them to stop the direct debits.
You need to contact them in writing and keep a copy of the letter as proof in case they fail to grant your request.
You can also direct your bank to stop any automatic withdrawals from your account.
- Don’t be intimidated by threats from debt collectors
If debt collectors keep hounding you with calls, stay calm and ask them to verify if the debt they are calling you about is yours, how they arrived at the amount you owe and if the lender is authorized to issue loans in your state.
Don’t be cowed by their threats and let them know that you have your rights, and that next time they try threatening you, you’ll report them.
No debt collection company has the right to contact your family, or employer regarding your debt, and if the threats persist, report them to the Better Business Bureau or the financial regulatory agency in your state.
- Always honor a court sermon
Some lenders will go to extremes and slap you with a lawsuit.
In this case, get a credit lawyer to give you legal advice but never ignore a court sermon.
Plead if you have to with the judge and ask the creditor for a settlement plan that’s affordable.
Having a judgment reported to credit agencies may hurt your credit.
- Ask for payday loan assistance
If you get overwhelmed by multiple loans, you can seek for debt relief through a debt settlement or payday loan debt consolidation.
Both means of debt relief have their pros and cons so, it’s important to choose what suits you most.
Debt settlement involves contacting third-party companies to negotiate with lenders on your behalf to allow you to pay a portion of your debt and pardon the rest.
The debt settlement company will also talk them into wavering all the accrued interest and additional fees.
You’ll then stop making payments to creditors, and instead, start saving in an escrow account that’s monitored by the settlement company.
Once you have raised a substantial amount, they’ll contact your creditors and negotiate on an amount.
If the lenders agree to the plan, which they rarely do, the debt settlement company will go ahead and pay them a lump sum of the amount agreed, charge their fee, and you’ll walk away debt free.
On the surface, it looks like a good deal and a faster way to clear your overwhelming debts, but it has its risks.
Some of the risks are:
- Most lenders may not agree to such arrangements
Usually, the debt settlement company contacts your lenders after you have saved some money with them.
There is, however, no guarantee that the lender will agree to such settlement plans.
Most lenders want their money in full and will not negotiate.
- It will hurt your credit further
Lenders are never aware of any arrangement when you stop payment because the debt settlement company usually contacts them much later.
They’ll treat your missed payments as delinquent accounts and report them to the credit bureaus.
Such information on your credit reports will further deteriorate your bad credit.
The forgiven debt will also show on your files, and this will take 7 years to fall off your reports.
- You’ll end up paying more
While saving up money in the debt settlement account, your lender will continue charging you interest and additional fees for missed payments. Some lenders may even take legal action against you.
You’ll have to pay off these expenses which will drain you more.
The IRS also treats forgiven debt as income, and that means you’ll have to pay tax for the canceled loans.
- Some debt settlement companies are a scam
The worst thing that can happen to you is to lose money while you’re still deep in debts.
Some companies will let you save money with them but never contact your creditors to pay off your debt.
Before engaging any debt settlement company, make sure it’s licensed, trustworthy and has a clean track record.
You can always check customers’ reviews before contracting them.
- You may be forced to pay for unsettled debts
The debt settlement company may never settle all your debts.
They, however, will require you to pay their fees as agreed.
Usually, they charge a percentage of all settled debts.
If for example you had debts amounting to $10,000, and the company only clears $5,000, they’ll still charge your 50% of the unsettled debts.
This is so unfair.
Debt settlements can still be beneficial, and some of its advantages are:
- It’s better than filing for bankruptcy.
- You clear your debts and walk debt-free faster.
It takes off a huge debt burden off your shoulder. It’s, however, not logical to pile all our credit card balances, payday loans, or students debts with the hope that your debts will be pardoned.
Payday loan debt consolidation
This means transferring your debt obligations to another lender.
All you need to do is add all your payday loans into one loan.
So, instead of paying multiple lenders at varying interest rates, you’ll direct all payments to one lender at reduced and affordable monthly payments.
How payday loan debt consolidation works
Once you enroll in a consolidation program, you’ll narrate your problems to the debt consolidator assigned to you.
They’ll then ask you to list all the loans you owe plus their interest rates and advice you on the options you have depending on your financial position at the time.
Once that has been established, they’ll advise you on the right loan amount to take and at what rate. The plan is to get you reduced interest rates and a monthly payment plan that’s both flexible and affordable to you.
You’ll then pay off all your payday loans, student loans, and credit card debts with a single check, and focus on one lender.
With debt consolidation programs, you can:
- Reduce your chances of being slapped with a court order – By paying off your payday lenders, you not only gain control of your finances and get out of the debt trap, but you also stop any legal proceeding that may come your way.
- Protect your money – once you pay off your debts, you’ll stop all the automatic withdrawals that you authorized the lender to make.
- Avoid additional fees and late payment penalties – lenders will charge a penalty fee for late and missed payments. Paying your loan in time helps you save some bucks towards servicing your new loan.
- Reduced interest rates and a flexible repayment plan – instead of the double digits interest rates and APRs, you’ll get a loan that’s not affordable but also a flexible repayment schedule that’ll not hurt your credit.
- Be debt free faster.
- If the loan was secured, you might lose your asset if you fail to pay the loan.
- Since the loan is long-term, you may end up spending a lot of money on interest.
- You lose control of your credit and finances. While in the debt consolidation program, you’ll have to adhere to the consolidator’s advice on how to manage our finances, the loans to take and other income generating activities to be involved in.
To qualify for payday debt consolidation loans you have to:
- Have more than two outstanding debts.
- Show proof of income.
- Have an active bank/checking account.
- Have debts amounting to more than $1,000.
Your responsibility and rights as a borrower
Once you get out of payday loans debt trap, make a decision never to look back.
All the above effort and hard work will go to waste if you don’t change your spending and credit utilization habits.
Below are other means of living a debt free life.
- Make sure you take out loans that you can afford and comfortably pay in time.
- Reduce your credit utilization rate to below 30%.
- When you get into financial distress, instead of taking out payday loans, look for other alternative sources of funds like borrowing from friends and family, taking out an advance at work or using credit cards.
- Work on building your credit score to qualify for affordable loans with better repayment terms. An excellent credit rating will enable you to access loans at banks and credit unions.
- Live within your means. Spending more than you earn is never a good idea. It’ll only make you incur more debts than you can pay.
Debts may be inevitable, but overreliance on debts is not good either.
Payday loans may look good on the surface, but they can easily ensnare you, and once you get trapped, getting out is an uphill task.
If you need loan help, this article will give you all the insight you need to get out of debts and live a debt-free life.
Making the conscious effort to get out of the payday loan cycle will not only help you gain control of your finances, but it will also help you live a life free from anxiety, and in your terms.