Payday Loan Debt Relief

What Is A Payday Loan?

A payday loan is characterized by its short payment term, usually of a couple of weeks to a month. It is meant to cover immediate living expenses from one paycheck to the next, hence its name. Payday loans are typically between $500 and $1,000, and the intention is to repay it using funds from your upcoming paycheck. 
 
Also, a payday loan is notoriously easy to take out, as the lender will not do a credit check. The only thing they need before sending you the money is verification of employment, an income statement, and your identification. This makes this type of loan dangerously enticing for people with bad credit–people who are often already in debt.

Fact: More than half of payday loan borrowers end up with more than 4 payday loans within a single year.

Because the borrowers are usually people with bad or nonexistent credit, the risk for the lender is high. That is why both the fees and interest rates are sky-high. How high? The average fee for every $100 dollars borrowed is between $10 and $30. If the repayment term for such a loan is as short as two weeks, a fee between $10 and $30 dollars equates to an APR of a whopping 260% to 780%! Compare this to the average APR on a typical credit card of 27.94%. Or the average APR on a typical personal loan for someone with a credit score between 300 and 629 of 21.14%.

Fact: The typical payday borrower is in debt five months out of the year

And that’s not all. If you are unable to repay the loan within its due date, your debt will continue to accumulate at an alarming rate. Let’s say you borrow at a 400% APR. For every dollar you get, you will have to repay four dollars. This means that if you take out a payday loan of $500 and are unable to repay within the due date, within a year the total amount you have to repay will be as much as $2,000. This extremely high price is what differentiates a payday loan from most other types of loans. While people see a payday loan as a last resort, it is essentially a debt trap. Any other debt is cheaper, and therefore better than this.

The Short-Term Consequences Of Taking Out A Payday Loan

Taking out a payday loan can hurt you in a multitude of ways. One of the biggest ones is that you will be forced to use up a good part of your next paycheck to repay the loan, which includes the entire sum with principal and interest. Also, there are no gradual payments if you can’t cover it all at once. Since the average lump sum payment uses 36% of one’s paycheck, you have a good chance of failing to meet your regular expenses month after month.
 
If you fall short of covering your monthly expenses, you may very well need additional payday loans to make ends meet next month. In fact, 1 in 4 payday loans is renewed, which continues the cycle of debt at this sky-high interest rate. 
 
Even worse, the lender has the right to collect their funds by taking money straight from your checking account. And it gets especially ugly if there isn’t enough money in your checking account to cover the debt. You will get shocked with a very big bank fee, and the lender will not stop trying to get their money. They may even sell your debt to a debt collector who will hassle you unmercifully until you repay it. This can come with a lot of undesirable, but more importantly, avoidable, stress.

Fact: The Dodd-Frank Wall Street Reform and Consumer Protection Act gave the Consumer Financial Protection Bureau (CFPB) authority to regulate all payday lenders.

Still, payday loans are predatory, not only hurting you in the short term but also in the long run. Taking out a payday loan will probably do you more harm than good.

This Short-term Loan Can Hurt You In The Long Run

Research suggests that 69% of people who took out a payday loan use it for essentials like utilities, car payments, food costs, and rent or mortgage payments. Unfortunately, as payday loans aren’t typically used for emergencies, this type of loan is usually the result of poor financial management. This type of loan is only a short-term fix for a symptom of a larger problem. It’s not meant to deal with the root cause–poor financial management. Check our resources and blog if you want to take your first step toward proper financial management. If you don’t know how to get started with these resources, you can call one of our experts for a free no-obligation consultation anytime.

Also, as lenders of payday loans will not check your credit score, repaying such loans will do nothing for your credit score. If you need to take out a loan to make ends meet, it’s always better to use a source of credit that does increase your credit score if you repay the debt. Although we don’t encourage lending in any way, shape, or form, using a credit card or personal loan is always better than a payday loan. These types of credit are typically much cheaper in terms of the interest rate and actually help you increase your credit score.

According to a Bankrate poll, as of 2023, around 12 million Americans rely on payday loans to make ends meet. If you’re one of those 12 million Americans, chances are you’re in a vicious debt cycle that you’re unable to come out of by yourself. In fact, 80% of borrowers who were tracked over 10 months rolled over or reborrowed payday loans within 30 days. Combine this with the sky-high interest rate associated with this type of loan, and you have a recipe for financial distress.

We are here to help you get rid of your payday loan debt and say goodbye to the financial distress you may be experiencing. Let’s dive into why this type of loan is so hurtful in the long run and how you can avoid them altogether.

How To Avoid Payday Loans

The best actionable way to avoid having to fall back on payday loans is by saving about $500 in a small emergency fund. While that’s much less than the three to six months’ living expenses recommended by experts, it’s a more doable goal if you earn a low income. It can be enough to help you through a bad time and buy you time if you need to play catch up with your finances.
 
As we’ve suggested above, having to take out a payday loan is often the result of less-than-optimal financial management. Therefore, improving your financial management is the best way to not have to resort to payday loans. Use the resources and blogs on our website to get better at this, or call one of our experts for a free no-obligation consultation if you want to get rid of debt and improve your financial situation. 

Debt Consolidation Reduces The Number Of Creditors To One

If you are only able to cover the minimum on your credit card bills and are ready to take out a payday loan, you could take decades to pay the balances off. That’s where debt consolidation can come to the rescue.

This type of debt relief reduces the number of creditors you pay by rolling all your prior balances into a single new loan. You then use the loan money to pay off your current creditors and say good riddance to late fees and penalties.

In addition, you will only need to track one payment at a single interest rate every month. You could even save money with a lower interest rate – although it will be for a longer payment term.

However, debt consolidation in the form of a loan isn’t for everyone. If your outstanding debts are so high that you can barely keep up with the minimum payments, you may not qualify. That’s when debt settlement might be the better option.

Debt Settlement Reduces The Amount You Owe

If your debts have grown to the point where you feel desperate enough to seek a payday loan relief program, there is a better alternative called debt settlement. And you could qualify even if bad credit is standing between you and other loans.

This type of debt relief reduces the amount you owe. It is based on the premise that creditors may accept a lower amount rather than risk the chance of receiving nothing at all.
If you qualify, you and your Debt Coach will determine a monthly payment amount that fits your budget and comfort level. The funds will then be deposited into a special FDIC-insured savings account in your name. So, instead of covering many unaffordable large bills each month, you will pay just one.

Once you have enough money in your account, our debt experts will negotiate on your behalf to substantially reduce the amount you owe. Only after you approve the settlement will the creditor be paid. This will continue until your enrolled accounts are resolved. And you could settle your debts in as little as 24 to 48 months.

Your Debt Coach will also show you better ways to manage your finances, including budgeting, saving, and planning ahead. That way, you could put debt, and payday loans, in the rear-view mirror.

Pay Off Your Debt

Imagine Getting Out From Under The Burden Of Debt

Looking over your shoulder every time you can’t pay a creditor can be exhausting. Payday loans can get you in way over your head even quicker. Of course, you don’t want that. And we don’t want that either. That’s why we are here to help.

You can work with a company that treats you like a person, not a number. Check what previous clients have to say about how they took back control over their lives. With the right support, you can resolve your debt too, and get back to a less stressful life.

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