The Payday Loan Trap: How Debt Management Plans Can Help – Guest Post
When payday feels like it just won’t come quickly enough, it’s easy to look for ways to get money sooner. Wouldn’t it be nice if we could borrow a little bit to tide us over for a few days or a month at most and then give it back as soon as we get our next pay check?
Well in actual fact this is possible and, provided that you’re aged 18 years or over, have a steady job and can accept funding into your bank account, then you may be eligible to apply for a payday loan – also known as a cash advance.
As we all know, the economic decline has left most of us feeling a little strapped for cash and saving for emergencies has taken a back seat. Whether it’s medical expenses or a household DIY nightmare, we all need a helping hand sometimes. So with a short term option at hand and lenders who are more interested in our current financial circumstances than how we have re-paid debt in the past, payday loans seem like an attractive possibility.
Yet with the penny pinch of the financial crisis at the forefront of our minds, how freely can we actually pay back this type of loan? Some have questioned the way payday loans are so readily available to borrowers that it’s been suggested loan companies do this knowing that customers will be unable to pay back what they owe. This might sound a little like a Catch-22, but in actual fact it’s better for the lenders if you default. If you can’t afford to repay your loan then you’re more likely to either take out a bigger payday loan to pay off the original one plus its interest or, by not paying what you owe, you will build up debt quickly through high interest rates and charges. Either way you’ll end up owing more money to the company and legally you have to pay this back.
As you can see, this can lead to a snowball effect; the more money you borrow the harder it is to pay back and the easier it becomes to continually renew the loan or just bury your head in the sand. When this type of borrowing becomes a permanent feature of a person’s finances, it is commonly referred to as ‘The Payday Loan Trap’.
Feeling stuck in a rut when it comes to owing money is typical for anyone who has any type of debt and many Americans don’t realize that help is available. One solution that has worked well for lots of people who are struggling with the Payday Loan Trap is a Debt Management Plan (DMP). A DMP is a non-legal status that helps you deal with your debts in a manageable and straightforward way. It differs from Insolvency and bankruptcy because you don’t have to go to court to enter into the agreement and there is no fixed term for the amount of time that you choose to be in it.
Put simply, you can access a Debt Management Plan by contacting a specialist that provides these types of financial solutions. Initially they will help you understand what you owe and how much disposable income you have, which will put you in a confident position to decide whether you would like to move forward or try to handle your debt on your own. The option will always stand to go into a debt management plan if you want to and the DMP provider will negotiate with creditors on your behalf to try to secure this.
What happens is rather than making numerous payments to varying creditors you simply make one payment a month to your debt management provider and they will distribute the payment between your creditors. You can choose to do this for a period of time or until you have wiped out your debts and for this reason many people enjoy the flexibility that a DMP can provide. In some states this can be handled by state consumer credit organizations but you have to fit their debt criteria to qualify for participation with them.