Payday Loan Debt Relief: 4 Main Ways
Payday loans are a very convenient solution to an emergency financial problem; however, in some situations, it can turn pretty hard to repay. This is fraught with the necessity of payday loan debt relief.
Table of Contents
- What is Payday Loans Debt Relief?
- Payday Loan Debt Settlement
- Payday Loan Debt Consolidation Program
- Payday Loan Debt Consolidation Loan
- Bankruptcy
- How to Find Payday Loans Debt Relief Company
What is Payday Loans Debt Relief?
Payday loans can be a vicious cycle if a borrower does not have a consistent source of income to pay the debt. Unfortunately, many people feel trapped and overwhelmed under payday loans. Generally, these are the short-term loans that people get for a small amount.
The borrowers have to pay back the loan on their next payday. Payday loans seem to create a bridge between monthly expenses and paychecks. However, they come with charges that translate into a high annual percentage rate or ARP. According to CFPB, a three-week payday loan with $20 per $100 fee, for instance, equals 400 percent of ARP.
The type of loan can affect the borrower’s credit scores but cannot boost them. It is because the credit bureaus do not report the payday loans. But if a borrower fails to pay the loan, the lender has an option to send his accounts to collections. And then it appears on the credit report and can hurt the credit scores.
This is where borrowers need an ultimate solution to escape the cycle of payday loan debt.
They can do this with payday debt relief programs and companies that help borrowers eliminate their payday loans and improve their financial situation.
Payday loan debt relief is the process of dealing with a person’s payday loan debts.
This is not an instant solution; however, for many people, it is the only possible one.
Payday loan debt can be settled in several ways:
- Debt Settlement
- Debt Consolidation Program
- Debt Consolidation Loan
- Bankruptcy
Payday Loan Debt Settlement
Payday loan debt settlement is an option for borrowers to resolve their payday loan debt. Precisely, it refers to a process in which a borrower pays less than what they owe on a payday loan. A debt settlement process allows borrowers to choose a reliable debt settlement company to calculate that is owed to lenders. The company then negotiates with the lenders to decrease the outstanding balance and accept an amount that is affordable for the borrower.
Put simply, a settlement attorney can help people eliminate their payday loans without having them pay additional interest fees or charges. If borrowers do not want to hire an attorney, they can begin debt settlement on their own.
The debt settlement program is fast and can help people become debt-free in a short period if they choose an attorney who offers reliable services. Besides this, with a negotiated amount, people are in control of their spending and finances. If a debt settlement company helps a borrower reach a consensus with his lender, it can save him a significant amount in the long run.
However, it is essential to consider that settling debt may take several months and years. Moreover, opting for a payday loan settlement means the interest rate on the debt will keep accumulating. That is why borrowers need to pick a company that assists them in negotiating all debts rather than just one.
Once again, here are the steps to take:
- First of all, a person should calculate the total amount of your debt.
- It is better to apply for the debt consolidation company as the specialists there can work out the best possible plan out of debts as well as analyze the existing situation and draw conclusions in order not to get into the same trouble again.
- The next thing to consider is the opportunity to reduce the rates. In many cases, it is possible to negotiate this issue with a lender and get a bearable compromise.
- In all the cases a person will get a new repayment plan that will be easier to handle. With new terms and rates, payday debt is no longer a disaster but rather something that can be fixed with time.
Payday Loan Debt Consolidation Program
As the name suggests, it is equivalent to a program that is applied to in case of a regular debt; however, it has got certain peculiarities. It is meant to help a borrower to repay the debt by making the terms more lenient and reducing the rates.
The idea of a payday consolidation program is:
- that a borrower pays for the company that from now on becomes his or her mediator in the interaction with the lenders;
- the company negotiates the repayment terms and the possibilities of the lowering of rates;
- a borrower does not need to make repayments to multiple lenders; instead, he or she pays a single monthly installment to a company that furthers the money on;
- the best part is that a borrower does not have to stress out about dealing with different lenders and only has to be punctual in repaying once a month.
Payday Loan Debt Consolidation Loan
Under the term of a debt consolidation loan is understood a special type of loan that can allow a person to pay off all the existing multiple loan debts at once and then gradually repay it with the installments made every month.
Generally, it is more convenient and beneficial as the rates are lower and the term is longer. All in the entire whole thing appears to be less expensive than continuing with multiple lenders.
With a debt consolidation loan, it is easier to plan your budget and also to feel generally more relaxed with regards to all the expenses. Besides, such a measure is advantageous for a person’s credit score as opposed to filing bankruptcy. It does not deprive you of any future potential loan options.
Every borrower should not forget that this loan is supposed to fix a budget and not ruin it. Besides, it may turn out that the loan amount available is limited and, therefore, smaller than your actual total debt. In this case, it is necessary to decide what part of the debt will be actually covered by the loan.
Debt consolidation loan also has got drawbacks such as its interest rates are not tax-deductible and therefore having a little benefit in this sphere; however, it may still be a better option than observing all your payday loan debts accumulating more and more.
How to Get a Debt Consolidation Loan
When considering a debt consolidation loan one should take into consideration that it is not something to get instantly.
It is recommended to browse around and create a list of the institutions that offer such loans and their terms and rates. There is no much sense in applying for the first institutions you come across. However, it makes sense to compare and choose the best option available.
It is necessary to pay attention to details and read the fine print carefully. All the particulars of the loan agreement should be disclosed to a borrower and especially the ones about the loan amount and costs.
When taking a debt consolidation loan one should keep in mind that this is a type of credit that a person applies for in order to improve the existing financial situation and not for making bad things even worse. Therefore, it is necessary that rates and fees were carefully evaluated and the repayment potential considered. In case the repayments on the future debt consolidation loan are bound to exceed the present ones it makes little sense to use this option as it has no benefit at all.
Debt Consolidation Loan Requirements
However, there are certain requirements for this type of loan consolidation option.
In order to qualify it is necessary to have a really good credit score that is not spoilt with any late or default repayments and also pretty good income which is permanent.
Such measures are necessary as they prove that a borrower is creditworthy. Besides, this option is available for the customers with a considerable amount of loan; it does not apply for small debts.
In case of a secured debt consolidation loan, a person will be required to offer some property to pledge as collateral.
Bankruptcy
The first thing to understand about bankruptcy is that it is a court procedure. There are two types of bankruptcy that a debtor is allowed to file. According to Title 11 of the Federal Bankruptcy Code, they are personal bankruptcy under Chapter 7 and personal bankruptcy under Chapter 13.
Chapter 7
The first form of bankruptcy is under Chapter 7 and it presupposes that according to the decision of the court all the non-exempt assets of a debtor are sold in order to cover the debts. This means that if a person has got a car is a possession, it will get sold to cover the debts. The rest of the debts will henceforth be cleared.
Chapter 13
According to Chapter 13, a person is allowed to keep some of the assets but, in fact, all existing liabilities go through reorganization. A person is offered a long-term repayment plan that allows more financial freedom in budgeting.
It is effective and for many people appealing way to solve their financial problems; however, not everyone takes into consideration the fact that filing a petition for bankruptcy is a long and more complicated procedure than other payday loan relief options. Besides, it is much worse in terms of a person’s credit report state.
For the majority of people, a positive credit score is a very important condition and bankruptcy can spoil it pretty badly. You can get your score lowered up to 250 points and you will have a remark about bankruptcy in your report. The latter stays in a report for 10 years on average and this is the reason why a person will be ineligible to take any more credits during this period.
How to Find Payday Loans Debt Relief Company
For a person who appeared in need of applying for a debt settlement company, it is essential to find a decent and reliable one as there are many that are eager to benefit from the problems of their customers. There are several factors that should be taken into consideration before actually picking up the company to deal with.
One of the first aspects to look at is the number of fees that a payday loan debt settlement company charges for its services.
Even in despair one should not lose one’s head and be aware that all the companies are obliged to disclose all the terms and conditions to their customers and especially when it comes to the fees.
Besides, this is important to understand how much it will cost to pay the company for the services in comparison to the amount of money saved in the process. Provided that the benefit is not really great, it makes sense to look for a different company with better options and offers.
A normal reliable company is generally able to reduce a person’s outstanding debts up to 70%; if the company’s fees are high, there is no sense to have business with it.
The next factor to be taken care of is the privacy policy of a debt relief company. As long as a customer discloses personal information to a company, it will be the most unfortunate if it is somehow furthered on to some third parties.
It is recommended that every person considering the option of dealing with a payday loan debt relief company should check it on the account of being listed in any trade association. It is the best option if the company you have chosen is on the list of the Better Business Bureau (BBB). Provided that there are no faults in the company’s record in this respect, a person can rest assured that a company is reliable and trustworthy and can be dealt with.
One should not be led astray by the promises of a great debt problem solution. As it has already been mentioned, there are a lot of promising-looking offers; however, one should understand that it is impossible for any company to rid a person of all the debts without any costs. Thus, one should better be reasonable and not get allured by fake promises. Besides, dealing with such companies can be fraught with even more serious troubles for a customer.
It is recommended that a person should better deal with a company that provides a plan of action for the debt relief that is based on the basic information given. Mind that the companies that promise to clear and waiving all the debts are likely to get you into additional financial trouble. In the case of indebtedness one is better to be realistic and stick with the company offering the real steps that can be of help. Any reputable company will need information about the credit state before offering a way out.
One more thing to take into consideration is that no company is legitimate to write off any information from a person’s FICO report.
Everything that goes on with a person’s credit history is put into a report and any such transaction can ricochet your credit score. After a certain amount of time, the report will improve but these things are not done on the spur of a moment.
Very frequently lenders apply for the assistance of collection agencies and they can be pretty annoying in case a person does not know how to deal with them. However, if you see that there is no way to handle the problem with numerous debts on your own, it makes sense to contact the creditors first and negotiate the repayment plan.
However, provided that there is no success with the negotiation on your own, one is better to apply for the professional help – The American Fair Credit Council can also be of assistance, where you can find a reputable company to act on your behalf.
In many cases applying for a debt relief company is more effective as the latter knows the ways how to persuade the creditors to be more lenient and even to waive some debts of a client. In many ways, a debt relief specialist can give a piece of advice and make sure you do not have that much headache about your debts anymore.