Dealing with financial troubles is often one of the most stressful times in your life. When problems arise, a quick fix starts to look attractive. Unfortunately, you are at your most vulnerable during a period of financial strife, and this is when lenders have the best chance to take advantage of you.
One of the most vicious ways they do this is through payday loans.
When you have bills due and simply do not have enough money to pay them, a payday loan may begin to look like your best option.
But these types of loans immediately put you in a worse situation financially than you were prior to signing on the dotted line. If you have been the victim of the outrageous interest charged on a payday loan, you may have a way out.
Is payday loan forgiveness a thing? While you are unlikely to get all of your debt forgiven, there are many ways to reduce the amount you owe.
But first, let’s go over what a payday loan is and how they can attract you.
What Is a Payday Loan?
Payday loans take advantage of people that need money quickly, and they can easily draw in unsuspecting customers due to how easy it is to obtain one.
The main issue with these types of loans is the exorbitant interest rate they charge you. People will often advise you to stay out of credit card debt because the interest rates are so high. But the highest a credit card interest rate will reach is around 36% APR. That is a debilitating rate to have to pay, but it comes nowhere near the rates charged on payday loans.
A deceitful practice by payday loan companies is hiding their true interest rate in a slew of fees. The given interest rate on the loan is completely different from the effective rate you’ll have to pay. When fees are factored in, the effective interest rate on a payday loan can range from 300% to 500% APR.
A 2015 survey shows that close to 12,000,000 Americans fall into the trap of a payday loan every year. In total, lenders receive $7 billion in fees for these loans.
Payday Loan Rollover
The problem gets compounded when you do not pay off the loan on time and instead choose to roll it over to the next period on its due date.
For example, let’s say your car gets a flat tire, and the shop discovers you have an issue with your axle that also needs fixing. The total costs of the new tire, labor, and the axel add up to $1,000. But you don’t have $1,000 right now and don’t have access to a credit card. You’ve seen commercials and signs for a company that promises quick cash that you can pay right back on your payday.
You secure the loan for $1,000 and fix your car, fully planning to pay back the loan once you get your paycheck. But once that day rolls around, you realize you won’t have enough money to pay your rent and utility bills. The lender is accommodating, though, and says that you can roll the payment over to a later date. But first, you’ll need to pay a $50 fee.
You figure that $50 now will be worth it in order to get some extra time to pay the money back. So you roll over the loan.
But as the fees mount up each time you roll over the loan, your ability to pay it all back gets worse and worse. You are now stuck in a vicious payday loan cycle that can feel impossible to get out of.
Tips to Get Out of Debt
The first action you should take if you find yourself in a payday loan cycle is to check to see if the lender is licensed to offer payday loans in your state. If the lender is not licensed, they cannot collect money from you. If the creditor has access to your bank account, close the account, and you will not owe any more money.
The following states have prohibited payday loans or have placed heavy restrictions on them. If you live in one of these states, you may have legal recourse:
- Arizona
- Arkansas
- Connecticut
- Georgia
- Maryland
- Massachusetts
- New Jersey
- New York
- North Carolina
- Pennsylvania
- Vermont
- West Virginia
Credit Counselors
Going to “counseling” may sound like an awful annoyance, but credit counselors can be an effective first step towards getting out of debt. A credit counselor will walk you through how you got into debt and will help you get out.
Debt Management Plans
A credit counselor becomes essential for creating a debt management plan. In this scenario, your credit counselor will negotiate a deal with the lender, with your help, and the result is a payment plan that becomes much more manageable than the payday loan cycle.
Negotiate Yourself
Lenders will often be flexible enough to negotiate. The lender has already made money on you and may be willing to waive fees or lower the interest rate if the promise of getting paid back is alluring. But you will not get a concession from your lender without asking for it. Don’t be afraid to negotiate down your debt.
Find Items to Sell
You can sell all sorts of items on eBay and other online auctioning sites. Many of these items are laying around your home, such as shoes, purses, clothing, collectibles, appliances, etc.
On eBay, you can search for “Sold Auctions” to get an idea of how much your item could be worth. You can also see where people put their starting bid on auctions that sold. Sites like eBay will take a small cut of the proceeds, but using them can be effective ways to make some quick cash.
Lower Your Expenses
The last option you have is to start spending less money. This may mean adjusting your habits, hobbies, and the food you eat. But lowering your expenses is often something that is completely in your control. You may not be able to lower your expenses enough to pay off your debt, but no matter how much money you save, this will help you get to that bottom line faster.
