Why People Fall In the Payday Loan Debt Trap And Its Possible Solutions
Guest Post Authored by Online Payday Loan Consolidation.
We used to get a common essay topic in school, whether science is a boon or a curse. Science is a part of our daily life and has made our lifestyle so easy. At the same time, misuse of science can become a curse as it can lead to the destruction of mankind.
I feel payday loans are somewhat the same thing. A payday loan helps a person when he/she is in need of money and can’t wait till the next paycheck. However, if a person can’t repay the payday loan (pdl) within the due date, he/she has to usually pay very high interest on the borrowed amount. This often leads to debt as it becomes difficult to repay the pdl. Often people fall in the payday loan debt trap when they take out one payday loan to repay another.
Why people are falling in the payday loan debt trap
One of the prime reasons for people taking out payday loans is that, usually, they don’t require any extensive paperwork. You can take out a payday loan within 24 hours.
A high rate of interest - As already mentioned, the high-interest rate makes payday loans difficult to pay off. The average annual interest rate of a payday loan is about 300%, and it can go up to about 700% in many states. Often borrowers end up paying more than what they originally borrowed in interest alone.
The borrower is not financially sound - When a person takes out a payday loan to make ends meet, it is usually because he/she is not financially stable. Otherwise, he/she could have managed an emergency situation without taking out a pdl.
Usually lender-favorable loans - Usually these loans come with lender favorable terms. Borrowers rarely read the fine print and become astonished when they experience collection calls. A lender can take legal actions much sooner than a borrower may anticipate.
Suitable solutions to get rid of your payday loans
Before discussing suitable solutions to repay your payday loans, let me first distinguish between legal pdls and illegal pdls. Illegal pdls are loans that have terms and interest that are prohibited by law. In contrast, legal pdls are ones which fall within the law.
Your biggest concern should be your legal pdls, since interest charges get added to them. If any of your payday loans are illegal, you just have to pay the principal amount, even if the outstanding balance (by adding up the interest charges) is quite huge.
Consolidate and repay your payday loans
When you enroll in a consolidation program, the consolidation company can negotiate with your pdl lenders to reduce the interest rate so that it becomes easier for you to repay the debt. Meanwhile, a counselor, on behalf of the company, will also assess your financial situation and decide upon an amount, which you need to pay to the company every month.
Once you make the single monthly payment to the consolidation company, it will disburse the amount amongst your payday lenders as per individual agreements.
Get rid of your payday loans by settling them
When you are struggling to repay your pdls, then settling payday loan debts can be a favorable option. Through this option, you can get rid of your payday loans by paying less than what you owe to them.
If you want complete professional guidance, you can enroll in a payday loan debt settlement program. Here also, a counselor, on behalf of the settlement company, will review your financial situation and decide upon a monthly amount, which you’ll have to pay to the company every month. The amount will get deposited in an escrow account.
The settlement company will also negotiate with your payday lenders to reduce the outstanding amount. Once one lender agrees, the counselor will use the funds from the escrow account and will pay in a lump sum. This will continue once you get rid of all your pdl debts.
Opt for an Extended Payment Plan
If you want to repay your payday loans on your own, you can opt for an Extended Payment Plan, or EPP.
If your lender agrees to it, you can make the payment in easy installments. Through this option, you won’t have to pay any additional fees or interest.
Tips to repay payday loan debt
Here are a few tips to save money and repay debts.
Save as much as you can
No matter what debt you’re trying to pay off, you need to save as much as you can. So, modify your budget and see where you can save money. Every day, deposit your change in a coin jar. At the end of a year, you’ll be astonished to see how much you’ve saved.
Embrace a frugal lifestyle
A frugal lifestyle doesn’t mean you’ll have to lead the life of a cheapskate. One way to lead a frugal lifestyle is to prepare a meal plan for the week and carry homemade food with you to work. Restrict eating out to once a week and for that too, don't choose an expensive restaurant. Instead, enjoy family time by involving your family members while cooking meals.
Sell items you don’t need
If you look at your house, you will find items that you don’t require but that are still in good condition. You can arrange a garage sale to sell these items and earn a significant amount. Bonus: while searching you’ll also probably find decorations that you can use in the next holiday season to save even more cash!
Review where you can save dollars
If you closely look at your expenses, you’ll find some that you can do without. For example, you can cancel your gym membership if you don’t visit the gym regularly. Instead, you can take a walk at a nearby walking trail and enjoy nature at the same time. Likewise, you can cancel your cable subscription and watch television shows online.
So, what do you think? What are better alternative to payday loans and how can you overcome the payday loan debt trap?