Money How to pay back a mountain of payday loans

01:45  10 april  2018
01:45  10 april  2018 Source:   MoneySense

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How Payday Loans Can Impact Your Credit. Payday loans are short-term loans where an individual can borrow funds needed to cover unexpected expenses until Payday loans often carry high interest rates, and can quickly turn into a case of mounting debt if not paid back within the first pay period.

Four Parts:Understanding Payday Loans Paying Back Your Loan Finding Other Repayment Strategies Managing Your Loan Community Q&A. lender, he risks additional fees or even a lawsuit or wage garnishment, if the lawsuit is successful. Knowing how to pay off payday loans may help

Click here to see more personal finance questions answered.© Used with permission of / © Rogers Media Inc. 2018. Click here to see more personal finance questions answered.

Q. I owe about $4,300 to six different payday loan companies. It started with a couple of loans to pay for some car repairs but then I was taking one payday loan to pay off the previous. I’m now in a situation where my payday loans total more than 90% of my monthly income. How can I get off this debt treadmill?

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A payday loan can be paid back by either automatic withdrawal or in-store cash exchange. Online payday loans require that an active checking account be submitted securely to complete the online application.

Pay your loan back by your following payday . On the scheduled payment day , the lending office will go into your bank account and withdraw the amount that you owe them. How to . Stop Payday Loans .

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A: I have met with over 4,000 clients over eight years on the front lines of the insolvency business. Of those, about a third had payday loans. And they very seldom have just one. Most have several, for reasons I’ll get into below.

The most I’ve seen is  one individual with 24. So your situation, while serious, is certainly not unique. Drive down certain streets in certain cities and you will see the telltale bright yellow signs as far as the eye can see. Payday loan outlets are popping up everywhere—even in places you’d think unlikely, like affluent neighborhoods. And now they are online, making access easier—and out of conspicuous view.

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Payday loans are generally due to be paid back in full on your next scheduled pay day . This generally means you have two weeks to pay the loan back . The most efficient way to stop a payday loan is to simply pay it back .

So what happens if you’re not able to pay the loan back immediately? You might quickly find yourself underneath a mountain of debt. So if you’ve ever had the question ‘ How bad are payday loans ?’ pop into your head , now you know the answer: ‘they are very, very bad’.

Like in your situation, the payday loan cycle begins with one payday loan to help deal with a short-term cash flow problem. Many ‘events’ start this way: perhaps the rent is due, your car needs emergency repairs, or you just need grocery money this week.

Unfortunately, all too often the cash flow shortfall is not temporary. If, when you must repay your payday loan you are still short for necessities, this means you are now deeper in the hole. So, you take out a repeat payday loan to repay the first and another payday loan to make bill payments. This begins what is referred to as the payday loan ‘spin cycle’ you are now in.

Today, three in 10 people who file insolvency to restructure their debts carry at least one payday loan. The majority (73%), like you, owe on more than one payday loan. In fact, on average they owe $3,464 on more than three loans.

If your only debts are $4,300 to the payday loan companies, you have a few options. These alternatives to payday loans can work to break the cycle and to avoid going down the payday loan path in the future.

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If you pay back your loan in less than a year, you'll pay less than the annual rate in interest. 3. I'm not a maths whizz, how can I understand APR? 6. What's the difference between payday loans and instalment loans ? Payday loans are short-term, high-APR loans , usually designed to be paid off

One option is a payday loan , which is also called a cash advance loan , check advance loan , or deferred-deposit check loan . You normally have to pay the loan back by your next pay day .

You can apply for a $4,300 term loan and consolidate these debts into one new loan. What interest rate you will be able to obtain will depend on how good, or bad, your credit score is. The lower your score, the higher your interest costs will be. Some alternate lenders offer small loans for rates as high as almost 60%. While high, this is better than continuing along on the payday loan cycle. (It should be noted that legal ‘usury’ in Ontario is 60% interest: a lender cannot charge that amount on any credit offered. That is why so many payday loans or their sister installment loans are at—you guessed it —59.9% interest.)

Most people I meet with who have payday loans or the installment loans I mentioned have never read the agreements they have signed. When I point out the interest rate and terms (“Total cost of borrowing” is a particularly scary line item), they are shocked. Alternatively, consider a cash advance on your credit cards. Again, the rate is high, often as high as 29%, however, that’s still lower than the cost of a payday loan.

As we often see, however, people who turn to multiple payday loans do not have good credit. That means that their borrowing options are limited. In this case, a better option may be to visit a not-for-profit credit counselor. They can help you negotiate a repayment plan through something called a debt management plan. There are two important things to know, however. First, you will have to repay all your debts in full. In addition, not all payday loan companies will agree to a debt management plan or waive interest costs.

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If paying back the payday loan means you’ll be short of money to pay priorities you should stop the money being taken. When you applied for the loan you gave your card details to set up a continuous payment authority (CPA). This is how most payday loan company take the repayment.

While you will still have to pay back the balance of the personal loan (with interest), a loan from a bank or credit union will have much better terms than a payday loan . How do I handle the phone calls of not paying a payday loan ?

Sadly, the people I meet with every day typically owe more than just a payday loan company. Our clients, in addition to multiple payday loans, owe an additional $30,000 in other unsecured debts like credit cards and bank loans. The payday loan is a symptom, not a core problem.

If you have significant other unsecured debts, you may need the protection and debt relief available through a Licensed Insolvency Trustee.

Once you have got your payday loan debt under control, take some additional steps to ensure that you do not need to rely on a payday loan in the future. If you are running short of cash every week, find a way to balance your budget by cutting costs or increasing your income.

To protect yourself from temporary cash needs, start building an emergency fund and consider overdraft protection. While overdraft protection comes at a high cost, it is again must less costly than a payday loan and less likely to put you on a repeat path to running on the payday loan treadmill.

Scott Terrio is Manager,  Consumer Insolvency at Hoyes, Michalos Licensed Insolvency Trustees in Toronto

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