Today if people have financial problems they apply for a loan and hope to solve all their difficulties. But very often doing this they get into even more debt than they used to have. It happens because of the lack of education and competence, irresponsible attitude, wrong budget planning, etc. This article will help the borrowers to avoid these unpleasant moments and get money they need. 

Credit card, Student, Auto, Payday Loan debts.

After the economic crisis and Great recession the Americans’ total debt amount has come to a record figure of $1.02 trillion dollars. The current average debt in US household is over $16,000. That’s much higher than in the past. It can possibly be related to the fact that an average American couple only has $5,000 saved for retirement.

12 million Americans use Payday Loans annually. The cause may be in their convenience and availability for applicants with fair or poor FICO score. Credit cards have also been awarded for the first time to consumers with below average credit scores. In comparison to 2008 more loans have been taken for tuition and auto purchase than housing. In fact, student loans are $671 dollars higher than in 2008. 

According to the Pew Charitable Trusts research more than 17 states long-term liabilities have increased recently. The top 10 with the highest debt as a share of personal income are:

  1. Massachusetts – 20.5%
  2. Mississippi – 21.2%
  3. Delaware – 22.1%
  4. Kentucky – 23.6%
  5. New Mexico – 23.7%
  6. Connecticut – 30.2%
  7. New Jersey – 31.2%
  8. Illinois – 31.7%
  9. Hawaii – 46.1%
  10. Alaska – 52.9%.

Financial analysts advise to focus on your credit card debt. “Even if you feel your debt is manageable right now, know that you could be one unexpected emergency away from real trouble.”

Only irresponsible Payday borrowers get in debt. Why?

Payday Loans are notorious for being too high-interest and expensive, which must definitely bury the borrower in an eternal debt. Why is this commonly held opinion wrong? And how should you borrow to avoid these problems?

The common myths about Payday Loans debunked:

  • High interest rates and APR: Yes, if you look just at the numbers they may look scary. 350%-800% APR seems impressive. But if you count how much it will be according to a low amount of your Payday Loan and a short term during which it will be paid off, you’ll see that the sum is very reasonable. If you borrow $100, for example, your interest is just $1. Is it too high price for the chance to solve your urgent problems fast and easy?
  • Its not short-term: The maximum term for Payday Loans is 31 day. Some people consider it to be a lie as they don’t believe in the opportunity to find the necessary amount of money to repay the loan in a month. Actually, the lenders who approve you for a cash advance, check your paying ability and count your salary beforehand so that you are sure not to default a loan as soon as your next pay-check is due.
  • Too high fees: when you apply for a Payday loan you need to remember that there are is no prepayment fees, no early repayment penalties, no hidden fees. The lenders only charge $10-$15 from every $100 borrowed. That’s it.
  • Unreliable lenders: of course, as in every profession, there may be safe reliable companies and dangerous fraudsters. But you can always check it, compare and choose the one you are sure of. Our company, for example, works only with authorized verified reliable direct partners. So applying with us is definitely secure and safe. Read "How to Choose a Reliable Lender?"
  • It will definitely lead to more debts: 80% of people take out another Payday Loan two weeks after the previous one. Haven’t you though it may be not because of its cruel conditions, but due to its easiness and convenience that helps people to survive in a difficult financial situation?
  • Cruel debt collection: all Payday lending is legal and is regulated by law. Any illegal actions on behalf of the lenders are prosecuted by the Government. The borrowers are secure. Just know your rights and if you think you’ve been treated unfairly don’t hesitate to complain to the Consumer Financial Protection Bureau ( (855) 411-2372).
  • It’s a vicious circle: the majority of borrowers are believed to use rollovers and extensions when the loan is due. But that’s not because they don’t have enough money. They just don’t know how to manage it correctly. The aim of our article is to help you do it.

What happens if you default or don’t repay a Payday Loan?

Defaulting a Payday Loan as well as any other kind of loan can result in:

  • More fees
  • Penalties
  • Some legal action.

Besides, as payday companies use automatic debit payments to take money out of your bank account, you must make sure there is enough money for it in order not to be charged any overdraft fees.

For more advice how to overcome a debt problem read further.

How not to get into a debt trap?

  • First of all, learn about Payday lending in your state. The law varies from state to state. Some of them change the administration process of lending in order to avoid a snowball effect of loan rollovers and extensions. In others lenders are required to offer their clients an Extended Payment Plan (EPP) which doesn’t let the fees and interest grow.
  • Secondly, make sure you borrow from a lender who is a member of the Community Financial Services Association of America (CFSA). They allow longer repayment terms without any additional fees or interest.
  • To apply for EPP (Extended Payment Plan) you must do it not later than you loan is due, and you need to sign a new agreement. So if you borrowed online you are lucky not to have to go back to the store to do it. You can do it from home. 
  • If EPP is not available to you, you should turn to the Credit Counselling Agency for help. They can either negotiate a settlement on a new repayment plan or help you adjust your budget. 
  • If nothing else works, you can declare bankrupt. It’s a myth that Payday loans can’t be included in a bankruptcy. 
  • And don’t be scared. You are not alone with your problems. You are under the federal and state law protection. Don’t believe the tales about cruel debt collectors. All their threats are illegal.

How should you manage your finances after you’ve paid off all the debts? 

Unfortunately, loans and debts have become an essential part of our life. But it’s not because we spend too much. Living as a millennial is not cheap. Let’s compare the prices of our parents with today’s.

 

1980

2017

Rent

$1,248

$4,500

College tution

$9,379,58

$28,600

Public transportation

94cents

$2,75

Still, if you are financially literate and plan your expenses, your loans and repayments in the right way, you’ll be able to survive in this expensive rapid world. As soon as you’ve paid off all your debts it’s a good idea to start to improve your credit score and to manage your budget carefully. Don’t know how? Read our article on FICO credit score on COMPACOM.com.