Posts Tagged ‘Debt consolidation’

How Payday Loan Interest Rates Can Lead To Bankruptcy

interest is among the highest interest rate for all types of loans. Lenders charge a payday loan interest rate of almost 25%. Imagine borrowing $100 as a cash advance. You have to pay almost $15 on it per week. If you are unable to repay the loan at the end of the week, you can ask for an extension. An extension on payday loans has its pitfalls. The payday loan interest rate is increased whenever the borrower is granted an extension. In four short weeks, the interest rate will be almost at par with principal amount. Add to this the rates charged on two or more payday loans, and it will not be hard to see why payday loan bankruptcy is on the rise in North America.

Besides payday loans, the borrower may have other outstanding debts such as credit cards, student loans, and car loans. Too many monthly payments (weekly for cash-until-payday) are difficult to manage. Delayed payments lead to high interest rates. Soon, the borrower finds himself or herself racing down the short road to payday loan bankruptcy.

Is Bankruptcy The Right Answer?

Bankruptcy is not always the best solution. Filing for bankruptcy not only deprives the borrower of his or her assets and belongings, it also carries a stigma. Lenders refuse to even consider loan applicants with a bad credit record, and bankruptcy is as bad as it can get. From getting a new credit card or new cell phone number to finding a mortgage, the bankrupt individual faces challenges at every turn. Once you have filed for bankruptcy, you may find yourself free of some debts but not all. Back taxes, for example, cannot be cleared if you file for bankruptcy. Alimony or child support has to be paid even if you are free of payday or credit card debts. Even students loans are not always wiped out by filing for bankruptcy.

If you are over your head in debt, is there an alternative to insolvency? Yes. You can opt for a consolidation debt loan payday.

How Does Debt Consolidation Work?

Payday and other loans will be merged into a single debt. You make a single monthly payment for clearing all your debt payments. The interest rate most likely will be reduced to enable the debtor to clear the debt. You will also need to submit a proposal that outlines how you will repay the loan. It might take into account factors such as income, savings, and changes to lifestyle.

A recent U.S. study found that almost 70% debtors who opted for insolvency could have solved their debt problem without going the bankruptcy route. All it takes is willpower and some expert help. While you can try to negotiate with multiple lenders to see if they can make things easier for you, the chances for success are slim. Lenders do not want to negotiate with people who don’t know much about debts, much less how to clear them. They may prefer to take an aggressive approach to frighten the debtor into paying up. They may doubt your sincerity. A debt consolidation company, on the other hand, has experts to negotiate on your behalf. They understand the loan market. They also have a solid plan for leading you out of debt, provided you cooperate with them. Payday loans are not inherently bad, but misuse of loans with high payday loan interest rates leads to a critical debt situation—a situation calling for .

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What are the pros and cons of debt consolidation?