Understanding Exactly What Payday Loans Are
Payday loans, also known as cash advance or check advance loans are
a relatively new trend in personal finances, and it is one that has
already caused a lot of trouble for many consumers all around the
country. The process of acquiring a payday loan involves you, the
consumer writing out a personal check to a payday loan company for
the amount you wish to borrow plus a fee (which can be as high as
30% at some places). The company keeps your personal check for a set
time period, typically until your next payday when you will either
pay the full value of the check or allow it to be cashed.
Understanding the Process of Defaulting
Video: Understanding Payday Loans
You can probably see the pitfalls of borrowing money in such a way, but you may not completely understand the consequences. Failure to pay back the payday loan company within the set period of time can result in a default on the loan, as can a bounced personal check when it comes time for the company to cash it. Apart from the bounced check fees with your bank, your credit will also be negatively affected as returned checks are amongst the biggest reasons for bad credit in America today – and even after these reports are paid off, they still remain on your credit; they are just simply marked as paid. Additionally, your bank account might even be closed altogether if you pass too many bad checks. Defaulting on a payday loan has several other consequences, as well.
Video: Avoid Payday Loans if at all
possible
Some payday loan companies threaten those who default with legal action, and in some cases criminal prosecution for check fraud, but this is illegal in most states. However, your wages can be garnished due to defaulting on a payday loan – and though there are certain restrictions that dictate exactly how much can be garnished, some companies may seek up to 25% of your weekly paycheck until the debt is paid off in full. In some states you can even be sued for up to twice the amount of the debt that is owed; and this is why it is of the utmost importance to always pay back your loans and debts.
Can Debt Consolidation Help My Defaulted Loan?
Whether you use the help of a professional debt consolidator or you do it yourself, effective debt consolidation can help those who have defaulted on a payday loan. Debt consolidation loans can be taken out to pay off your payday loan quickly, and then you’ll only have one low monthly payment on your most recent loan. Additionally, you should be focused on trying to reduce any monthly leisure expenses in order to better use your money in paying off your payday loan.
What Can I Do To Prevent Default?
Fortunately if you haven’t yet gone into default on your payday loans, there are several steps you can take to try and avoid it altogether. This is by no means an all-inclusive guide, but it is a good starting point that offers some valuable tips on avoid loan default.
- Set financial goals for yourself that are within your reason
- Understand the exact maximum amount of money that you could possibly earn with your current job, as well as the absolute minimum amount
- Analyze your current expenses and cut back or eliminate unnecessary spending
- Keep careful track of your budget, and don’t spend more than you can afford
- Open up a savings account, create a savings plan and then stick to it
Possible Alternatives to Payday Loans
While these are all great hints, some of them are easier said than done – and many have already tried these tips with various degrees of success. Fortunately, there are also several great alternatives to payday loans that many consumers are not even aware of.
The first thing you should do is ask your bank for a loan, or
borrow money from your credit card company if you have one. You may
also be able to take out a cash advance on your card, though this is
typically more expensive than making normal, everyday credit card
purchases. If you have already borrowed a payday loan and now you
are in a hurry to pay it back, it is a good idea to ask the payday
loan company for an extension – many times they will grant you one,
they it may cost you an additional fee. You may even consider
using your credit card to pay off your payday loan if it means avoiding the process of defaulting.
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