By Adrian Moreno / Updated: Oct 22, 2019

Payday Loans Consolidation: When Rollovers Don’t Help

Payday Loans - Tips and Tricks to Avoid Rollovers

Despite their high-interest rates, payday loans offer consumers quick cash when they need it most – during emergencies. There aren’t many requirements to obtain these loans either. If you have an active bank account, job, and valid ID, you’ll likely qualify.

It’s not surprising that each year, roughly 12 million Americans rely on these loans.

The Problem With Payday Loans

Unfortunately, research also shows that seven out of 10 borrowers use their payday loans to cover everyday expenses such as groceries, rent, and utility bills.

Many of these borrowers find themselves financially trapped. When rollovers only lead to more trouble, borrowers will need to consider other ways to manage their mounting debt. The cycle of loan rollovers – or paying a fee to delay the repayment process – is easy to fall into. And it’s hard to escape.

Get Out of Payday Loans

There are various ways to get out of payday loans, but some are better than others. Here are a few strategies available to you.

Consolidation Program

Payday loans consolidation is arguably the best route to take. This is when a financial services company negotiates with your lenders. The result? An account is set up, and you’ll make an affordable monthly payment to that account, rather than having to pay each lender.

Overall, this method is all about simplification. You won’t have to worry about:

  • Numerous collection calls
  • Making payments to multiple lenders
  • High-interest rates
  • Advance fees

The consolidation can lead to you paying off the debt entirely in about two to five years, and you’ll see your credit score improve over time.

Consolidation programs usually provide financial education programs and counseling, as well. The IRS requires non-profits to offer these programs.

These educational sessions can show you how to create a more effective budget and avoid spiraling debt in the future. It might sound like a chore, but ultimately, it will improve your financial literacy.

Secured Consolidation Loan

Sometimes when people want to take advantage of the lowest interest rates they can find, they enter into a secured consolidation loan. This involves offering property as collateral.

For example, you might use a vehicle or home as collateral. You’ll still be required to make monthly payments. And if you fail to pay back the loan, the lender will keep your property as a penalty.

This type of loan might seem more affordable at a glance, but you can end up paying on it for well over five years. In that time, the cost of those low-interest rates will begin to add up.

With your property on the line, this strategy can become stressful.

Payday Debt Settlement

This can be one of the fastest ways to erase the debt, but that doesn’t mean it’s the right choice for everyone who is struggling with their finances.

During this process, a settlement company can negotiate with the creditors. The goal is to get the creditors to settle for a balance that’s lower than what you originally owed. The new balance can be handled with a lump sum payment.

What’s the downside? It’s not great for your credit score. It can be a negative mark on your credit score for seven years.

Bankruptcy

This infamous option can help you escape payday loan debt. However, it should only be used if you have no other choice. Essentially, this is when you tell your creditors you can’t pay back the amount owed.

Your credit score will take a hit, so expect many financial opportunities to be out of reach for several years after taking this path.

Military Lending Act

If you’re U.S. service member, you can find government help with payday loans. The Military Lending Act makes it unlawful to charge a member of the military a loan interest rate that exceeds 36 percent. This also applies to the service member’s dependents.

Under this law, service members also have a few other benefits. For example:

  • They can’t be charged a penalty for paying off a loan early.
  • A creditor can’t automatically take money from their paycheck.

Faith-Based Organizations

Certain religious groups, such as the National Association of Evangelicals’ Faith for Just Lending, aim to assist victims of predatory lending. Some of these organizations will pay off payday loan debt, while others offer low-interest alternatives to payday loans.

Life After Loans

No matter how you escape your payday loan debt, it’s essential to stay clear of these loans in the future. Here are a few guidelines to follow:

  • Develop an emergency fund that can cover at least six months’ worth of necessities. This way, you never feel tempted to use payday loans to handle things like rent or utilities.
  • Cut down on unnecessary reoccurring payments. Let go of expenses such as cable or gym memberships long enough to build up your savings.
  • Downsize and declutter. Not only should you consider a cheaper living space and vehicle, but also aim to sell all those unused items you have laying around your home.

These guidelines are just a start. Once you arm yourself with smarter spending and saving strategies, you can avoid payday loans entirely.


Works Cited

1 PaydayLoanInfo.Org “Payday Loan Consumer Information” https://paydayloaninfo.org/consumer-help

2 Credit Karma Inc. “Understanding payday loans and your options” https://www.creditkarma.com/advice/i/payday-loans/

3 Investopedia “Bankruptcy” https://www.investopedia.com/terms/b/bankruptcy.asp

4 NeedHelpPayingBills.Com “Loans From Churches” https://www.needhelppayingbills.com/html/loans_from_churches.html


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