Taking out a cash advance loan, which is also called a payday loan, might seem like the ideal solution to your short term cash needs. These loans claim to provide assistance during financial emergencies, making it seem that you are likely to save money. The reality is that cash advances are not as simple as they seem and often lead to debts that are hard to pay.
The Loan Debt Trap:
A cash advance loan often results in falling into a gradually deepening debt trap. A debt trap means that you might seem to get relief for the short term, but ultimately that golden egg turns into a rotten one and you are left with high debts that are difficult to pay.
The way that the cash advance loans become a debt trap is through the high interest rates. A cash advance loan requires full repayment in a very short period of time, which is most commonly around one to two weeks. On the due date specified, you are required to pay the full loan amount plus the fees added to the account. It is the high fees that make it difficult to pay.
Fees vary by lenders, but often result in paying as much as $30 per $100 borrowed on the loan. This means that if you borrowed $200 as a cash advance to pay for a credit card bill and avoid the late fees, you end up repaying $260 on your next payday.
While particular fees can range from $10 per $100 borrowed to $30 per $100 borrowed, most lenders providing cash advance loans opt for the higher ranges unless stopped by legal requirements.
The average annual interest for cash advance loans will often range from around 300 percent to 800 percent in most states. If you are not able to pay the full amount, you end up rolling over the debt by paying the fees and then having an extension to repay until the next one or two week period.
Climbing Out of the Trap:
After you have found yourself in a situation of struggling with a few cash advance loans, you are likely to wonder how to get around the financial situation. Unlike regular loans and even credit cards, which have a fixed monthly payment and allow gradual repayment, the cash advance requires a full repayment at one time.
Fortunately, you do have options available to get those loans back in order so that you can move beyond this complicated situation. The first part of getting the situation in hand is via cash advance debt consolidation.
Cash advance debt consolidation starts with talking to the creditors. Due to the high fees, you are likely to end up paying more than the total loan amount within two to three months of taking out the loan. If you are still struggling with the payments at that time, you will need a little help to get back on stable ground financially.
Consolidation through negotiation starts with asking for lower fees and a gradual repayment plan. While state laws vary slightly, payday lenders are required to allow gradual repayment if you are struggling to manage the full repayment at one time. This means that professional negotiators can help you get the situation back in hand.
Negotiations can continue beyond making a payment plan or reducing interest by asking for a settlement. A settlement works by asking for a lower principle amount. With cash advances, you are likely to end up paying well beyond the initial principle even if you repay it within two months. Settlement can help you manage to clear the debts without further complications by negotiating a deal that makes the loan affordable.
Benefits of Consolidation and Settlement:
After you decide that consolidating through negotiation and then settling the cash advance loans is right for your situation, you will see obvious benefits.
The most obvious benefit is more affordable debts that allow you to get out of the situation. If you have fallen into a debt trap with the promises of quick cash, then you will need a little help to get out of the situation. Consolidation and settlement provides a more affordable solution and allows you to move beyond the debts.
A key benefit that is sometimes overlooked is the improvement to credit ratings. While you will need to work on rebuilding your credit score, settlement will allow you to start improving the rating information immediately. The negative impact is only temporary and will improve with each month. Getting rid of those high debts will improve your ability to keep up with other bills so that your credit can improve.
Cash advances are difficult to manage once it gets out of control. Fortunately, consolidation and settlement can help your situation. Call us today or fill out the form to find out more information about consolidating cash advances.