Do you turn to a payday loan to get out of debt? No way! If any lender speaks about using a payday loan to get you out of debt, there are no best practices being used at that company. The small loan will help keep payments on time when you’re waiting for your next paycheck. But if you are looking to get out of debt, an online payday loan is not the avenue you should be travelling.
It can get confusing. Which way should you turn when looking to correct your debt problem? Since, “How can I get a payday loan?” not an option, you will be looking at some tough decisions.
Don’t use online payday loans as debt relief.
The best known option heard around the world is bankruptcy. It is ironic that the most well-known option should be considered as the last possible route to financial recovery. There are two types of bankruptcy:
- The first type is Chapter 13. In this form of bankruptcy, debtors are still obligated to pay off debt using a payment plan approved by the courts.
- The second bankruptcy is Chapter 7. The court is petitioned to excuse all debt. Once the judge signs off your debt, your debt will be erased.
Dealing with debt the bankruptcy way carries the most damage to your credit score. Having debt “charged off” or “paid as agreed” are both negatives which will stay on your report for seven years. The creditors involved with the bankruptcy will also be labeled as such.
There is debt settlement. Stop paying your creditors and pay a company a small monthly amount which will build in escrow. Once you have enough saved, the company will negotiate a settlement. The debt settlement company will continue to collect payments until all debt entered into the program is settled. The monthly amount which you pay will be estimated settlement costs plus fees for the company split up into 12-36 months, depending on how much your debt equals. One thing to remember when using this option is that not paying your creditors will get your accounts sold to collections. You may want to work with a settlement company accompanied by a lawyer in order to get collectors’ calls redirected to the lawyer.
Your credit score will drastically go down as you don’t pay your creditors and settled debt is still a negative stroke on your score. These comments will remain on your credit history for seven years.
Debt consolidation programs will work at lowering your interest in order to get your bills paid off faster. You send money to the company and they pay your creditors. This may seem like a better option, but your payments will show up as done by a third party. Any future creditor will see that you required help in order to pay off your debt. This will cause problems for future finances as well.
Online payday loans, car title loans, cash advances, and pawn shops will all provide some fast money to be used to keep up with an immediate payment, but they will not do anything positive for your pile of debt. The last thing you do want to do is fall behind on these options. A pawn shop and title loan will use the collateral to pay your loan off. Direct payday loans and cash advances will expect payoffs in just a few short weeks. Defaulting on these loans will only bring more negative to your credit score.
