What is payday loan debt?
A payday loan is a loan made to a person who, in theory, intends to use the money and then pay it back when they receive their next paycheck. However, it’s usually not that simple. Most payday loans come strapped with outrageous interest rates that can be as high as 700% or 800%. Because of the high interest rates, many payday loan users often find themselves trapped in a payday loan cycle. They use payday loans to pay off old payday loans and eventually find themselves in a situation where they have so much debt that they can’t pay off.
How payday loans keep people trapped in a cycle
Video: What are Payday Loans?
Still don’t understand what a payday loan is? This clips explains how they work and why they hurt many consumers.
How two people handled their payday loan debt
To best illustrate how debt consolidation can help those suffering with payday loan debt, look no further than “Bill” and “Jane.”
- Bill works two jobs to support himself and his family. However, a few months ago, he had car problems and needed some extra cash to help him pay for the car and his bills. He took out a payday loan and promised his wife that he would pay off the loan with his next paycheck. However, Bill got socked with a high interest rate that forced him to pay back almost five times what he originally borrowed. Naturally, he could not pay his monthly bills and pay off the loan with his next paycheck. So he took out another payday loan to pay off his last one. Now, he’s constantly taking out payday loans to pay for older loans and feels trapped in a cycle that doesn’t know how to get out of.
- Jane was also in Bill’s position a few months ago. Like Bill, she took out a payday loan. And then took out another one. And, finally, she found herself in the same vicious cycle as Bill. She owed thousands of dollars to her payday loan creditors. Rather than continue to take out payday loans like Bill, Jane inquired about consolidating her debt. Not only did this make her life easier by eliminating her multiple payday loans, it also lowered her interest rate dramatically and gave her hope for the future. Consolidation took the total debt she had accrued through payday loans and put it into one convenient balance that she could chip away at over time. Within just months, Jill was able to pay off her debt and move on with her life.
How the poor economy has affected payday loan users
Video: Payday Loans Scrutinized
Payday loans have forced many people into deep debt over the years. But with the American economy struggling, they’ve impacted the country even more recently. Watch this clip to see just how bad it has gotten for some Americans.
Ten reasons you should use debt consolidation to pay off your payday loans
As you’ve seen and read, payday loans often leave consumers trapped in a cycle of debt. Paying them off is expensive. It forces people to use money that they don’t have to pay down debt that seems to be never-ending. You should learn from them and consolidate now. But if you’re still not convinced, here are ten more reasons to consolidate your payday loan debt:
- Your paycheck will mean something again: Every two weeks, you used to look forward to receiving your paycheck. Consolidating your debt means you won’t need anymore payday loans. It will put the meaning back into payday for you.
- You’ll avoid massive interest rates: Payday loans come with high interest rates. It makes it almost impossible for you to pay them off. It’s one reason some states have banned payday loans altogether. Consolidation allows you to stop the bleeding and get a more reasonable interest rate.
- Consolidation is less complicated: Juggling multiple bills is difficult. Not only are they hard to pay off, but they are also hard to keep track of.
- No more collections calls: By consolidating, you’ll only need to deal with one creditor who you’ll actually want to communicate with to pay off your debt.
- You won’t need to worry about your credit score: While debt consolidation may affect your credit report and credit score slightly, it’s nowhere near as harmful as continuously defaulting on your bills.
- It’ll decrease your stress level: Stress is proven to cause health problems. It can also tear apart marriages, friendships and even relationships within families. Consolidation is a proactive way to get you and your spouse, friend or family member on the same page.
- It can affect job performance: Why work hard when all you’re doing is spending money on, essentially, nothing? You may start to feel hopeless at work because of your payday loans. However, paying off consolidated debt feels rewarding.
- The American economy is bad: Recently, the economy in this country has gone from bad to worse. Payday loans are just one of the many reasons it has tanked. Getting away from them is a smart move.
- Consolidation works: There’s a reason debt consolidation is offered in the first place. It works. Unless you plan on hitting the lottery sometime soon or coming up on a large sum of money, paying off payday loans with more payday loans is only a temporary solution to a problem that will grow larger over time.
- You’ll get your financial future back: Wouldn’t it feel great to make money again and have your paycheck really mean something? Debt consolidation is a way to take control and move into the future.
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