Everyone has seen payday loan centers advertised on commercials with smiling people who have cash stuffed in both hands. These commercials suggest payday loan businesses are centers for getting back on your feet financially.
The reality though is a very different picture.
Payday loan use is a recurring practice for many of its victims; 80 percent of loans were taken out two weeks after a previous loan was paid.
Given that Alabama has a 7% usage rate for payday loans, paying back these loans is a concern for many in our state. With the COVID-19 pandemic these loans are only expected to increase.
We want to help you understand what the payday loan debt cycle is and how you can get out of it.
DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.
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What Is the Payday Loan Debt Cycle?
The payday loan debt cycle describes the oftentimes detrimental debt process that many people in dire financial circumstances find themselves.
It frequently starts with an individual needing cash quickly. They may need this cash to pay rent, keep up with a car loan payment, or even to buy groceries for their family.
Payday loan companies will then lend the individual an amount of money (not usually exceeding $500). It is usually mandated that these loans be paid no later than 30 days after the loan is made. The harmful aspect of these loans to the debtor is that the interest on these loans is often extremely high. In fact, the interest payment on average is higher than the amount of the original loan.
After the money becomes due, many individuals find themselves in a financial bind once again. Though they have yet to pay the original loan interest payment, they seek another loan from payday lenders. These are often the only options that these individuals have to get cash because no other lenders will lend to them because of poor credit history.
Thus, a cycle of debt to payday loan companies begins.
How to Escape the Payday Loan Cycle
When solving a debt problem, the solution is often found only by getting to the root of the problem.
Why did you seek out a fast money loan? You were low on income, of course!
So, how do you remedy this?
Find some type of employment.
Though it is often difficult to find the exact job that you want, there are countless opportunities for work. You may need to work a job for which you feel overqualified and underpaid. However, some income is better than none and any little bit will help you pay off your debt and manage paying your expenses.
Next, pay off your debts.
We suggest using the “debt snowball” method developed by Dave Ramsey.
Begin by ordering all of your payday loan debts from smallest to largest. Then, make the minimum payment on all debts except the smallest. As you begin to pay off each debt little by little you will build momentum.
If you are struggling to come out of the payday loan debt cycle and can’t see a way out, call David S. Clark. Our attorneys not only cover bankruptcies, but also assists clients with other financial matters like payday loans.
DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.