Payday loans are just like cash advances. The loans are typically in small amounts, and they have short-term maturity rates. Borrowers are required to repay the loans on their next payday, hence the term’s nickname. In recent years, payday loans have grown increasingly popular, as more and more people need the convenience and speed of getting money advances before their next salary installment.
Despite the popularity and convenience of payday loans, it can be easy to get stuck in a cycle of debt with this kind of fast financing. Payday loan lenders argue that the fees for bouncing checks or reconnecting utilities after they have been turned off are often much more costly than any associated with their short-term loans. Often, these lenders will charge upwards of 15% for every $100 borrowed by a client.
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In other circumstances, borrowers who cannot pay off the total of their loan(s) by the next pay cycle are given an option of rolling over their repayment amount(s) for an additional fee, though this practice is increasingly being outlawed. These extension fees grow so high that it forces people into borrowing more money while also paying the higher interest costs and fees. For individuals who are living from paycheck to paycheck, the payday loan process can easily snowball out of control.
Using Debt Consolidation to Reduce Payday Loan Debt
If you find yourself struggling to pay your bills and living from paycheck to paycheck, it’s easy to get caught up in the web of spiraling debt stemming from payday loans. Using debt consolidation is one option for tackling this problem. Consolidating the payments on multiple payday loans will give you only one bill for each month until you have repaid them all. You won’t have to write several checks a month, and you will be able to pay off the debts faster.
Consolidating payday loans is usually only available for those loans taken out from online (internet) vendors. And you will only be able to consolidate if you have defaulted on your payments. There are four simple steps to consolidating payday loan debt. First, calculate the total outstanding balance amount of what you owe on your payday loans (and any other unsecured debts). Second, find a consolidation company to guide you through the process. Be sure the company can offer you a free debt counseling session so that you will be able to consult with a debt counselor about your situation. Knowing all of your options is critical to restoring your financial standing.
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Third, make sure the debt consolidation company negotiates with your creditors to get you lower interest rates on your payday loans. Doing this will ensure that you will be able to pay off the principal balance along with the reduced interest costs in a reasonable amount of time. And fourth, check that the debt consolidation company also negotiates a new repayment plan with your payday lenders. The company will do this after meeting with you to analyze what monthly payment schedule will be best for you to pay off the debt in a timely manner.
Following is a list of states where payday loans are banned: