Payday Loans

Breaking The Payday Loan Debt Cycle

Payday cash advances are small, short-term loan programs that are designed in a way that traps majority of the borrowers into a vicious payday loan debt cycle. Cash advances from payday lenders are unbelievably easy to borrow. In most cases, the loan approval comes almost instantly and you get access to the borrowed money within a matter of just a few hours. But, if you look at the other side of the coin, you will get the horrible picture associated with these types of loans. It is not without any reason why sixteen states have banned payday lending; other states have imposed strict payday loan laws; and, even the FTC (Federal Trade Commission) has termed these loans as “predatory” and has warned consumers against it. The extremely high cost of lending combined with other major risk factors (such as unfair collection practices, the provisions of automatic rollovers and all that) makes payday loans the worst financial option.

Thousands of people are getting bankrupt every year just because they got trapped into a never-ending payday loan debt cycle and could not find out a way to break this cycle and get out of it. However, it does not mean that there is no solution to this problem. If you are aware of the payday loan laws applicable in your state and learn how to make the best use of your legal rights, it is very much possible to get control of your debt situation. Following is a brief rundown on some of the steps which, if you follow thoroughly, will definitely help you get rid of your seemingly impossible debt problems and will put your finances on the right track.

Close Your Bank Account

If you are trapped into a payday loan debt cycle, the first thing you have to do is to close your bank account. If you do not already have another bank account, open a new one with a different bank. The main reason why you should do it is to stop your lenders from unfair collection practices. What actually happens is that when you borrow a payday loan, lenders require you to provide your banking details so that they can withdraw the money directly from your bank account on the scheduled due date. Alternatively, some lenders accept a post-dated check, which they send for collection to your bank on the set due date. It is very important for you to understand that most payday loan companies make bulk of their money by charging you additional interest and hefty penalty fees once you fail to make the repayment in time. That is the reason why their main target consumers are the ones who earn a very limited monthly income and often need extra cash to meet their financial needs. When you close your bank account, lenders will not be able to send the same check for collections again and again. Besides that, there will not also be any question for direct withdrawal.

Tackle Collection Calls With A Calm Head

When you close your bank account to break the payday loan debt cycle, it will definitely make your lenders angry. The high probability is that they will give you harassing collection calls and will threat you that they will take legal actions against you and will send you to jail. Now, here, it is very important for you to keep in mind that the US laws strictly prohibit lenders from harassing their debtors in any manner; it is a criminal offence. Likewise, there is no way you can be sent to jail just because you do not have the money to pay off your payday debts. Inability to make debt repayment is not a crime, and so, no criminal charges can be placed against you. So, inform your lenders or the debt collection agents that you are very well aware of the laws and request them not to harass you again. Do not forget to add that you are seriously making the best efforts to pay off the debts as soon as possible, but you do not want anymore collection calls from them. When you place this request in writing, it becomes legally mandatory for the debt collectors to stop collection calls or any contact regarding debt collection immediately. But yes, they will still have the right to file civil lawsuits against you; they can send you legal notices, which you must immediately respond to.

Review The Loan Contracts And Check If Everything Is In Accordance With The Legal Limits Allowed By Your State

If you are trapped in a nasty payday loan debt cycle, it is most likely that your lenders are charging you more than the permitted legal limit in your state. Therefore, the next step, which is the most important step, is to review your loan contracts thoroughly once again. The idea is to find out whether the interest rate, finance charges, collection charges, NSF fee, the repayment terms and provisions regarding rollovers are in accordance with the payday loan laws applicable in your state. You can find detailed information about your state laws by visiting the “payday loan laws” section in the “payday loan” category on this blog. It is very much possible that your state has prohibited rollovers, but your lenders are still practicing this provision illegally. Likewise, some states have limited the number of rollovers to just one or two, but if your loan accounts have been rolled over for more than that, it is again illegal. The similar thing holds true for NSF fee as well, which in most states, can be charged only once and the amount has been restricted to around $25 only. Most importantly, a large number of states have made it legally mandatory for payday loan companies to offer an affordable repayment plan (in easy installments without charging extra fees or interest) to those borrowers who are having difficulty in paying back the loans; certain conditions apply here, which you must thoroughly study first.

Contact Your Lenders Or Debt Collectors

Once you find out all the details about the illegal practices that your lenders are involved in and which has actually trapped you into this nasty payday loan debt cycle, the next thing you have to do is to contact your lenders and let them know that you have done your research and have found that you are being treated unfairly and illegally. First, request them to bring the charges down as per the legal limits allowed in your state. If they agree to do so, the chances are that you will be able to pay off your debts quickly. However, if they continue harassing you and continue insisting that all charges and provisions are legal, you can go ahead and file a complaint with your state authority or with the Federal Trade Commission. You may also find yourself in a situation, where you realize that you have already paid a much higher amount of money that you were legally obligated. In this case, there is no need to pay more toward those debt accounts. Instead, you can file criminal lawsuits against your lenders and fight for justice.

Always remember, payday loan companies usually try to avoid legal troubles. Therefore, if you have done your research thoroughly and are negotiating efficiently, the high chances are that you will be able to break the payday loan debt cycle easily and will settle your debts in an affordable manner.

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