When a Payday Loan Won’t Go the Distance

If you’re considering a debt-relief program. . .

Lots of people are struggling with money right now. Sometimes all it takes is a quick payday loan to clear a financial hurdle. But when you’re overwhelmed with debt, a short-term loan may only make matters worse. If you think you’re a candidate for some kind of debt-relief program, read about your options in What Should I Do? | Debt Relief Options.

There are many reputable and reliable debt-relief companies that really do help people get their debts under control. But before you enter into any kind of a debt payment plan, a few of words of common sense and caution are in order.

Do some simple research.

Before you enter into any kind of debt-relief plan, take a few simple steps to find out whether the company is trustworthy. Check for complaints filed with the Better Business Bureau, your state Attorney General, and other consumer protection agencies. You can expect to see some consumer complaints, but the majority of them should be resolved.
If you are considering debt settlement, make sure the company is a member of The Association of Settlement Companies (TASC). TASC is an independent trade association involved in clarifying and improving rules governing the debt-settlement industry.

Understand the fees and payments.

Make sure you understand the fees you will be charged by the company and the exact details about how your debt-plan payments will be applied. Don’t agree to fees that seem unreasonable and don’t settle for vague explanations about how your debt-plan payments will be applied.

Don’t agree to payments that seem too high.

Don’t enter into any kind of debt-relief payment plan unless you are reasonably confident that you will be able to make the required payments. If you fail to make the payments, your creditors will be entitled to collect accrued interest and penalties at the original contract rates. If you are unable to complete your plan, you may end up owing more than you did when you started, your credit may be harmed even further, and your only remaining option may be a Chapter 7 bankruptcy. For more information about bankruptcy, read What Should I Do? | Bankruptcy.

Understand what happens when you stop paying your creditors.

When you enter into a debt management or debt settlement program, the company will instruct you to stop paying your creditors. When this happens make sure that the payments you make to the start company are applied to your debts immediately.

If you are working with a debt settlement company, it is sometimes necessary to stop paying your creditors and allow your accounts to become delinquent. This is because most creditors will not accept payment plans unless your accounts are seriously behind on your payments. When you stop making payments – even though your purpose is to get a payment plan accepted – your creditors will report late and missed payments to the credit bureaus. This issue can be unavoidable; but make sure you understand and accept the consequences.

Understand what happens to your credit report.

Be aware that, at least initially, any type of debt relief (other than a debt consolidation loan) can result in negative information on your credit report. However, if you are deeply in debt and especially if you are behind on payments, your report may contain negative information and your credit score may be very low already. Improving your income-to-debt ratio by finding a manageable way to pay your debts can be the first step toward cleaning up and improving your credit.

Don’t believe promises to remove negative credit information.

Be cautious of any company that promises to remove accurate but negative information from your credit history. No debt management or debt settlement company has this ability. Any company can ask your creditors to remove such notations from your report, but no creditor is obligated to do so.

Get it in writing.

Don’t make a commitment with any company based solely on a phone conversation or an email exchange. Request a written copy of the terms and conditions of the agreement before you commit and especially before you make any payments. If you can’t get the terms in writing or if the terms aren’t reasonable, move on.