According to the Community Financial Services Association of America website, “More than 19 million American households count a payday loan among their choice of short-term credit products.”  Most people who take out payday loans get them to cover living expenses like their electric and phone bill, gas, groceries and rent. Below we’ll highlight some ways to get out of payday loan debt and help you better understand payday loans.

You can view our video for this blog post or continue reading below

Settle Your Payday Loan Debt

What is a Payday Loan?  

A Payday loan is a short-term cash loan.  Borrowers write a personal check for the amount they want to borrow.  But in addition to that amount, the check includes the finance charge and THEN they can receive their payday loan.  When the borrowers next paycheck comes out, then the loan and finance charge must be paid in one lump sum.  The average payday loan term range is about 2 weeks and ranges from $100-$1,000 depending on the state.  Between the interest and the finance charges, borrowers end up paying between around 400-800% annual interest rate.  Payday loans are appealing because there is little qualification for a payday loan other than having an open bank account, an income of some kind and identification.

 

The Payday Loan Trap

According to the Consumer Federation of America “Consumers who use payday loans have an average of eight to thirteen loans per year at a single lender. In one state almost sixty percent of all loans made were used to cover the prior payday loan transaction; either through renewals or new loans taken out immediately after paying off the prior loan.”

New guidelines from the Consumer Financial Protection Bureau could go into effect as early has next year.  Payday lenders will be held to new standards including confirming their customer’s income and that they can pay back the loan while covering their basic living expenses.  New regulations will also reduce the number of times a payday customer can roll over their loans into newer and more expensive loans with higher interest rates. New regulations could cripple the payday industry.

 

Is There a Way Out Of the Payday Loan Cycle?

YES! A payday loan can be negotiated through a debt settlement.   Payday loan debt settlement is the process of paying off debt to a creditor after mutually agreeing to a sum less than what is originally owed. The debt settlement negotiation allows the debtor and creditor to agree on a reduced balance amount.  The payday lender would rather receive some of the money that you owe them than have you declare bankruptcy and receive nothing.   You can attempt to settle payday loan debt yourself or you can hire a debt relief attorney.  Be aware of debt settlement companies, as they are not held to the same legal standards and ethical obligations as an attorney.  Most payday loan debt settlement attorneys will give you a free consultation before you take the next step.  An experienced attorney will negotiate with your lender to settle debt with payday loans and significantly lower the amount you pay back on the total payday loan debt that you owe.

 

How Will a Payday Loan Debt Settlement Affect My Credit?

Your credit will take a dip and suffer in the short-term, but once you get out of payday loan debt – you will be free of the seemingly endless payday loan cycle.  In order to settle your payday loan debt, you must make the difficult decision to stop paying your creditors. Non-payment of your payday loan negatively impacts your credit score and your credit report will show missed payments for 6 months until the debt is charged off. These negative marks remain on your credit until you settle and pay off the debt. The good news is that credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.  And the better news is that your cycle in the payday loan trap will be over.

 

Why Would a Payday Lender Agree to a Debt Settlement?

When a lender gets a consumer stuck in the payday loan cycle, the borrower is just chipping away at the debt. But, once you stop paying the minimum owed, the lender loses their income and debt settlement allows them a way out, since the lender can now claim your account as a loss.   The payday lender will then use the losses to offset other profits and reap the benefit of creative bookkeeping. 

Lenders are in the business of making money.  For the payday lender, a debt settlement means they get at least some of the funds that you owe without the company having to take you to court. Litigation is expensive and time consuming, so settlement is often an attractive option. If they know they’re sure to get at least some of the amount from you, many companies are willing to discuss options.

Through a payday loan debt settlement, an attorney will negotiate aggressively with your payday lender to reduce the total amount that you will pay back.  In my San Diego debt settlement law office, I can oftentimes cut your debt in half or more. If you are facing overwhelming payday loan debts, you may be able to find relief through a debt settlement with your lender.

Payday Loan Debt Settlement Attorney San Diego

If you are still unclear if a debt settlement is the best option for you, I would encourage you to speak with an attorney that focuses on payday loan debt relief options to determine what is best for you.

Call Gamez Law Firm for a FREE consultation to discuss your debt relief options.  Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, daniel@gamezlawfirm.com or use our online contact form. Stay updated with the latest debt relief tips by following on Facebook and Twitter!