Today’s economy has major credit card lenders tightened their lending criteria. Many in need of funds have therefore turned to payday advances and other short term loans to help make ends meet. Sadly, most realize too late getting out of payday loan debt is a lot harder than getting into it. These cash advance type loans were designed to be bridges between pay checks in emergency cases. With consumers now opting for 12 months or more terms, and squiring multiple payday loans at a time, things can get ugly pretty quick.
Payday Loans are Nothing Like a Credit Card Bill
Unlike credit card loans, short-term loans are usually set up to be paid back in 3o days. Should a borrower not pay the full amount in 30 days, they can pay just the interest that month in most cases. Problem is, these loans can carry anyway up to and beyond a 300% APR interest rate. Borrowing as little as $500 can assess an $80 a month interest charge. Compare that to a credit card bill. A $500 balance would mean about a $20 monthly minimum payment at around 18-20% annual interest. Payback at that rate would take maybe 3 years. A payday loan for the same amount would require around an $80 a month payment minimum.
Here’s the problem, paying interest only means no principle is being applied. In other words, it would NEVER be paid off as long as the borrower cannot pay it it in full and stop the cycle of rewriting the loan(s).
Endless Cycle Payments on Payday Loan Debt
Most people who take out a payday loan, do not generally have the means to pay the balance in full. In fact, most go and get other payday loans in addition to cover loans already out. This creates a vicious cycle of high monthly payments to crippling interest charges on loans that never go down.
Virtually all short term cash advance loans require that the lender have access and draft payments directly from consumers’ bank accounts. One or more payments are drafted directly by the lender each month. This means they get their money first and can drain funds needed for living expenses right out of your account. The only two ways to stop them are come up with the full balance or close your bank account.
The latter is sure to upset them, and they still expect to be paid as agreed. Not getting paid instead will obviously begin collection activities. Sometimes they are very aggressive and many will in the end sue.
Some Agencies Now Offer Debt Management Programs for Payday Loan Debt
The good news is, some credit counseling agencies, such as BSI, have been approved by the payday advance loan leaders to offer debt management programs to repay payday loan debt. Most will offer a 10 month payback to our clients while either reducing or eliminating ongoing interest. This means if accepted, the same $500 payday loan debt can now be paid back at around $50 a month and for only 10-12 months. We also can consolidate multiple loans into one monthly payment.
We encourage consumers who are having any difficulties with payday loan debt to fill out the short contact form on our homepage or call us at 866-249-0343 for more information on how we may be able to help in your personal situation. All consulting is dome by Certified Counselors and is always free to the public.