There are many people that turn to loans for getting out of debt holes but if you think that you can rely on payday loans to get by you are seriously risking a mental breakdown and a worsened financial crisis. Yes, a payday loan can help you tide over a minor financial setback till your next paycheck comes in the mail. But, depending on them for bailing you out of bigger debt can be ruled out without hesitation. Such loans are not designed to take care of bigger debts running into a couple of thousand dollars or more.
Bigger unmanageable debts problems require tougher decisions.
Bankruptcy-the final destination
It may sound incredible but the toughest do or die solution for tackling debts is Bankruptcy, and the most exercised options are Chapter 13 and Chapter 7 bankruptcy.
- Ø In chapter 13 the court appoints a “Trustee” who gives a fair hearing to both the borrower and his creditors and finalizes a loan repayment plan that is implemented over a period of three to five years. The borrower and the creditors have no option but to adhere to this settlement.
- Ø In Chapter 7 the court endeavors to liquidate all debts completely by selling the borrower’s assets in a one shot attempt at loan liquidation. The borrower benefits because many unsecured loans get waived and creditors can’t come after him for the balance outstanding, if any.
Bankruptcy suffers a severe drawback; the consequences have to be lived with longer than any other debt reduction procedure because the credit report will carry the bankruptcy entries for seven to ten years making it difficult (not impossible) to get fresh credit or a new home or car loan.
Debt settlement-third party mediation with creditors
In a debt settlement a third party settlement agency that you hire will negotiate with creditors to thrash out a repayment program through a compromise that involves a degree of debt reduction and waiver. The agency will hold your money in an escrow account and pay off the creditors till your debts are cleared one by one. The agency will receive your agreed monthly remittances and deduct its fees while passing on the balance to the creditors. This way your loans get systematically liquidated in two to three years. This is a viable option if the agencies can convince the creditors to give you a waiver. The chief drawback is that agencies charge heavily and you could face taxation on the amount that has been waived by the banks. Mention of waivers and debt settlements is also a blot on your credit report but with less damage potential than a bankruptcy.
In debt consolidation you take out a fresh new loan that can be leveraged to clear the older loans. A payday loan will only make available smaller loans that will not gain you any benefit in clearing bad loans, besides the interest rates they charge exceeding 400% to 1200% APR will destroy you financially before the older loans do you in! Because payday loans themselves need to be repaid in the shorter term they leave you no breathing space to recover from loan consolidation.
Leveraging loan consolidation through a title loan
Where payday loans fail you, loans for vehicle title support you. The exciting thing about a title loan is that you get to access more than 60% of your vehicle’s resale value within minutes of applying. This is like someone throwing you a lifeline when you are drowning. The title loan lays down the ground rules very clearly; you should own the title to your car (the collateral) and it should be free of loans. Car equity loan interest rates rarely exceed 25% APR, far removed from the killer rates charged by pawn loans and payday lenders. Auto equity loan repayments will never stress you because they can be tuned to the short term (three to six months) or the long term (maximum three years) for bigger loans. A fast car title loan is instant money that can be leveraged to kill bad debts without hurting your credit score.