Consumer Debt Relief Archives - National Debt Relief

Are You Using Payday Loans To Just Get By?

August 14, 2012 by Paul Ritz

I was shocked the other day when I read that about 5.5% of Americans have used a payday loan sometime during the past five years. In 2010 alone, 12 million U.S adults had payday loans. Who are these people that rely on short term loans?

They tend to be parents, divorced or separated people and others who are struggling to get by. Most do not have a college degree and seven in ten have an income of around $40,000 a year.

According to the report I saw, more than 50% are white, female and between the ages of 25 and 44. And African-Americans are more likely to use these loans than any other race or ethnicity – despite the fact that they represent a smaller fraction of the population.

The cost of a payday loan

Again, according to the report I saw, people take out an average of eight loans a year and that the loans average $375. And they spend $520 in interest. This means the average payday loan customer is using them more as a high-interest line of credit than a way to fix a short term problem. Most short term loans turn into long term problems.

A last resort

Payday loans are often a last resort for people who are desperate and feel they have no other place to turn. The biggest problem with these loans is that one tends to lead to another, which leads to yet another so that people end up in debt to the payday loan companies for months and maybe even years.

Borrowing from Peter

Unfortunately, for many people, a payday loan is like borrowing from Peter to pay Paul as they are borrowing from tomorrow’s payday to pay for today’ s expenses. In fact, research suggests that most payday loans are used to pay for recurring items such as utility bills, medical expenses or car payments – and not for emergencies.

A vicious cycle

To see why payday loans can become a vicious cycle, let’s take as an example that person who earns $40,000 a year. That translates into a payday of probably about $1,300 every two weeks. If that person borrows $375, his or her next paycheck will be less than $925 (depending on the interest charged). You can see from this example why payday loans can become a vicious cycle and that once you start using them, it becomes very hard to stop.

Make sure you understand the terms

If you do have to get a payday loan, make sure you read the documents and understand all the terms of the loan. While the lender will be providing you with money, its goal is to make money. You just need to make sure it’s not making too much money and that you can pay back the loan without having to immediately apply for another.

How to avoid payday loans

One expert I read suggested that families could avoid having to fall back on payday loans by having a small emergency fund of maybe $500. While that’s much less than the six to nine months’ living expenses recommended by many experts, it’s a more doable goal for people with low incomes but this could be enough to help them through a bad time.

If you’re buried under a mountain of debt

If your debts have grown to the point where you feel you need a payday loan, there is a good alternative called debt settlement. This is where our debt professionals work with your creditors to reduce your balances as much as possible. When you choose National Debt Relief, instead of having to to pay many large bills each month, you will make just one low monthly payment. Plus, you should be able to settle your debts within 24 to 48 months from when you started your debt settlement plan.

Start with a free savings estimate and see how you can keep more of your paychecks each month instead of using a payday loan to just get by.

April 29, 2012 by editor

Did you know that we have something sort of in common with lizards? Most lizards don’t really see anything unless they can eat it or it can eat them. In other words, they can see only those things that are important to them. We humans can be much the same way. Here’s an example of what I mean. If you decide to buy a new Toyota Camry, the chances are you will suddenly see lots of them on the streets around you. This is because the car has become important to you and you are more likely to notice it.

Consumer debt relief can be similar to this. If you’re not wallowing in debt, you may not notice any ads for consumer debt relief. However, if you are having a problem with debt, you may suddenly see ads for consumer debt relief on television and all over the Internet.

A fertile ground for fraud

The unfortunate fact is that consumer debt relief is a fertile ground for fraud. You may be tempted by an ad that promises to get you out of debt in just a few months or that says the company can negotiate a settlement that will cut your debt by 60% or even 70% –in just a month.

The odds are that any company that makes promises like these is probably out to scam you. When you think about it, the promise might be attractive but just doesn’t pass the smell test. No consumer credit company is going to willingly reduce your debt by 60% or 70%, as there is just no logical reason for it to do so. And if you have consumer debt of $15,000, $20,000 or even more, the same holds true–it is just not logical that you could pay off that amount of money in 12 months.

A scarier possibility

There is another and even scarier way that these consumer debt relief companies can scam you. They will tell you to stop making payments to your creditors and send them the money instead. They promise to escrow it and then use the money to negotiate settlements with your creditors. The problem is that once you send one of these companies your money, you lose control of it. If you’re lucky, they will do as promised, escrow your money and then use it to settle with your creditors. However, there are unscrupulous companies out there that will take your money and just keep it. It could be six months or more before you learn what’s going on and by then it may be too late to do anything about it. You’ll be out whatever amount of money you sent the company and in even worse shape financially than before.

A company you can trust

Before you agree to work with any consumer debt relief company, be sure that it’s one you can trust. You can check out the services it offers, its history (the number of years it’s been in business) and its customer testimonials. You should also check with the Better Business Bureau to see if it rates the company. When you read customer testimonials, be sure they seem real. Unethical debt relief companies have been known to write their own reviews. If you read several different reviews that seem to have about the same wording, you can just bet that real customers did not write them.

You should also see if the debt relief company belongs to an association such as the National Association of Debt Arbitrators or the U.S. Chamber of Commerce. The company, National Debt Relief not only belongs to both of these organizations, it also adheres to the code of the AFCC or American Fair Credit Council. National Debt Relief provides a free debt analysis that you can access by filling out a form on its front page, http://www.nationaldebtrelief.com. If you’re looking for a trustworthy company for consumer debt relief, you should go to its site and get started with an analysis today.