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Payday loan debt traps millions of people every year. Within just a few months, even a small debt can become unmanageable due to high interest rates and fees.
The average interest rate of a payday loan is around 391%. That’s just the average: some companies charge a rate of up to 500%. That is considerable, and unpayable for most borrowers.
So what happens? Borrowers’ bank accounts are wiped out, and they’re hit with overdraft fees. They get into increasing financial trouble. They don’t have the money to pay their regular expenses, much less make a payment on their payday loans.
It’s a grim situation. But with payday loan consolidation, there is a way out.
Payday loan consolidation is useful when you have unsecured lines of credit like online and storefront payday loans?Here’s how that works.
Once you find the payday loan consolidation company you want to work with, they will help you work out a payment plan you can afford. During that process, the consolidator works closely with your lenders to bring down the interest rates and seek to have your additional fees and extra charges waived. At the same time, most consolidators will offer you free counseling to help you evaluate your current financial situation and help you improve it.
This form of debt relief works best when you’re struggling to pay high-interest payday loans even after making your best efforts. By helping you pay off cash advance load, payday loan consolidation helps you get control of your finances - and your life - again.
When should you get payday loan debt assistance?
The amount of your new monthly payment will depend on:
There are two main ways to get payday loan relief.
A Consolidation program
This payday loan debt relief option gives you the ability to make a single, affordable monthly payment. You lower your costs while eliminating the need to manage multiple payday loans or use assets as collateral. It’s a wise choice for getting control of your debt.A Consolidation loan
This option requires you to put up collateral to get the best rates. If you don’t want to put up collateral, or don’t have it to put up, you will pay higher interest rates. It is generally not a good choice for getting control of your debt.Compare Your Payday Loan Relief Options: Debt Settlement, Consolidation or Loan?
| Comparison | Payday loan debt settlement | Payday loan debt consolidation program | Payday loan debt consolidation loan |
|---|---|---|---|
| What it does | Reduces your loan’s payoff amount | Lowers your loan’s interest rate and monthly payment | Transfers your debt to another lender |
| Payoff term | 2-4 years | 2-5 years | 1 -30 yrs |
| Mode of payment | lump-sum payment | monthly payment | monthly payment |
| Requirements | Sufficient savings to make the payment | Make monthly payments | Collateral |
| Credit score | Drops initially but improves over time | Gradually improves | Gradually improves |
| Is this the best way to get out of payday loan debt? | This way is best when you are able to pay off multiple payday loans with one lump sum payment. | This way is best when you can afford a single lower monthly payment. | This way can be a good option when you have collateral and are confident you won’t lose it. |
OVLG provides payday loan debt assistance in the following ways:
Learn more about payday loan assistance
The best payday loan debt advice for anyone is to never get one. They are expensive loans, which makes it easy to get in over your head, quickly. If you need money, look for alternative lending sources like:
Even credit cards are usually a better deal than a payday loan if you can get them.
Neither authorized payday loan lenders nor illegal lenders can send you to jail when you don’t make a payment. However, authorized lenders can sue you in court. There is a risk of a default judgment when you lose the case, which means that you could have wages garnished or liens placed against future earnings.
CFPB: Proposed laws to end payday loan debt traps and save borrowers
The consumer watchdog Consumer Financial Protection Bureau (CFPB) has proposed new rules in March 2015 to bring an end to payday loan debt traps. The proposed rules aim to save consumers from debt traps mainly in 2 ways - prevention and protection.
Proposed rules:Read the Proposed Rules
If you want to use an online payday loan consolidation option, then make sure to do your due diligence on the provider. Make sure:
Payday loans are short-term loans designed to be paid off your next paycheck. The full amount of the loan becomes due just two to three weeks after the loan is issued. Most people end up making a partial payment, then take out a new payday loan for the balance of their old one. But sometimes, even the most responsible borrowers face a situation where they can’t pay the amount due on the due date, and they cannot secure a new loan to cover the difference.
If you can’t pay on time, you’re facing a big hurdle. You may start receiving calls from debt collectors. And your outstanding balance will begin to skyrocket due to the very high-interest rate that’s common to almost all payday loans.
So what’s the solution?
An Extended Payment Plan, or EPP.
An EPP will help you pay off the outstanding balance on your payday loans in four equal installments - without added fees or interest.
Under an EPP, if your payday loan company is a member of the Community Financial Services Association of America (CFSA)
They will be required to give you your next four paydays to pay them back.
If you have taken a loan from a CFSA member, then you can ask for the EPP. After you submit your application, you’ll get a new statement detailing your modified loan agreement, which will tell you the amount of the four equal payments you will need to make over the next four paydays. There will be no new fees or interest charged for these new terms.
You can make payments in cash, or you can use the ACH debit option to have the payments withdrawn automatically from your account on payday. It’s up to you. Either way, you need to inform the lender when you set up the EPP. Most lenders won’t allow you to change the payment method after you have signed the new agreement.
Carefully read the information on the payday loan lender’s website. There should be a CFSA logo there.
If the company has a physical address, then it may be better to go in and look for the blue oval logo yourself. It should be on display somewhere prominently in their office.
If the CFSA member agency doesn’t agree to give you an Extended Payment Plan, you can call 888-572-9329 between 9 and 5 Eastern time. That’s the CFSA hotline number. You can also register a complaint at the CFSA website.
Under federal law, you can apply for an EPP with each payday lender once per year. No more than that. However, your state laws vary on this, so you should definitely check the laws in your state. The lender will be obligated to follow the law in your state.
Also, remember that you can’t take out another payday loan until you have paid off the entire amount due on your EPP.
The consequences for failing to pay off your EPP loan can be severe. Your lender may be able to charge you an additional EPP fee, along with other charges and penalties. The lender can increase the amount of the payment you must make each pay period. They can sue you for principal, interest, and penalties. In short, it can be a ruinous financial disaster that you should make every effort to avoid. Before entering into an EPP, be certain that you can make the payments, and make them on time, every time they’re due.
Are you paying high-interest on payday loans? Would you like to get rid of your debts and save money? If so, then payday loan consolidation is exactly what you need.
The first thing to do is to find a trustworthy consolidation company, and if it’s a law firm, that’s really good.
Next, you have to attend a session with a debt counselor and decide if you want to join a payday loan consolidation program.
You will need to share important details with your counselor. Details such as:
Afterward, the company will ask its attorney to check if the lender is licensed in your state.
Now, if the loan is illegal, the consolidation company will arrange it so that you only have to pay the principal amount.
And, if it is legal, the company will negotiate with the lenders to reduce interest rates and to arrange an affordable repayment plan for you.
Last Updated on: Wed, 24 Mar 2021
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