Alternatives to Debt Consolidation Loans: The High Cost of Payday Loans


Many senior Americans struggle to make ends meet on a monthly basis. Fixed incomes aren’t always enough to meet the demands of seniors, especially when it comes to unforeseen costs such as health difficulties, housing, automotive repairs, or broken appliances. There are few solutions available to assist elders in navigating these challenging times. Small, cheap loans are difficult to come by. Finally, the majority of seniors are forced to take out high-cost small loans, such as payday loans.

What is a Payday Loan?

Payday loans are known under a variety of different names, like “deferred presentments”, “cash advances” as well as deferred deposits” as well as “check loans” however they all function the same manner.

The customer sends an e-check at the bank. The amount of the check is the same as the loan amount and a fee of or a percentage of the total sum of the payment, or an amount in dollars. Certain payday lenders provide another option, namely an “automatic debit” agreement. The customers who sign this agreement consent to the lender to debit their account at a later date. The automatic debit agreements particularly are usually marketed to those who receive public assistance as well as Social Security recipients.

Checks (or the debit contract) will be held for up to a month typically, until the next payday or until the receipt of a check from the government.

Payday loans are the amount of money that is less than the amount stated on the bank check. When the time frame is agreed upon the borrower must return the entire sum of the check (more than the sum of the loan) or permit cashing of the check or pay a cost to prolong the loan.

Why are Payday Loans Expensive?

A difference in the value that the customer receives on the cheque and the amount the client receives in return is the amount of interest or a loan cost that the lender will charge. These kinds of loans are usually very costly.

Debt consolidation loan alternatives

The debt consolidation loans may not suitable for every person. Since debt consolidation loans are personal loans with no collateral they may have stricter criteria for eligibility or the loans might not be adequate for the kind of debt that you’re trying to consolidate. A few debt consolidation loan alternatives include:

  1. Credit card for balance transfer credit card:A balance transfer card lets you transfer debts through another credit card — typically credit cards issued by other companies — or make use of a balance transfer credit card to mix other forms of debt for a zero per cent interest. The promotional rate for this low period usually lasts between 12 and 21 months. Additionally, a high to good credit score is required to get approval. After the initial period has ended and you’re accountable for paying the standard interest rate of your card on the balance. Furthermore, the majority of cards charge an amount for balance transfers for the entire amount you transfer, usually between 2 and 5 percent.
  2. The Home Equity Loan or HELOC The home equity loan as well as Home equity lines of credit (HELOCs) allow you to take out loans against the equity of your home. While a home equity loan comes with fixed monthly payments with fixed interest rates and HELOCs have a variable interest rate. HELOC is similar to an credit card, and comes with an interest rate that is variable. Both are able to be used to consolidate high interest loans, but you’ll run the risk of the loss of your property if cannot pay back the loan. Additionally, both require you possess a certain amount of capital in the home. In contrast to mortgages for debt consolidation as well as home equity loans, HELOCs generally have longer repayment terms and bigger loan amounts and lower interest rates.
  3. Cash-out refinance A Cash-out refinance replaces your mortgage with one that’s bigger than the current balance. You can take any difference in balance between two, and use the funds to enhance your home’s condition or consolidate the debt. Like an equity loan for home or HELOC it is possible to lose your home if it’s not possible to repay the loan.
  4. The term “debt settlement” refers to The process of settling a debt occurs when you discuss with your lender how to settle a lesser amount than what’s owed in order to pay off the debt. You may bargain with the debtor on your own or pay an amount towards a debt negotiation business or attorney to bargain on behalf of you. If you or a lawyer or firm is successful in negotiating the settlement and you are able to settle the debt, your credit score could be affected.
  5. The bankruptcy process:Filing for bankruptcy is a process of going before a federal court to have your debts wiped out or reorganizing them so that it gives you the time to pay the debt off. While you may be able to eliminate your personal loans, medical debts and credit card debts through bankruptcy, it’s very difficult to get rid of tax debt and student loans. When you make a decision to pursue this option be aware you credit score is likely to suffer massively; it could take years to rebuild.

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