Due to the COVID-19 pandemic, a large number of people have lost their jobs or have gotten a pay cut. Many businesses across the world are suffering from huge losses due to this deadly virus.
A report by Fortune reveals that in our country, more than 42.6 million people have filed for unemployment benefits! Can you imagine?
In this situation, many people are falling prey to loan sharks by taking out loans at incessantly high-interest rates. Most likely, they aren’t thinking about the consequences of how they will repay these payday loans.
And if you are already trapped with payday loans and have lost your job or getting a pay cut, then your situation might be more difficult!
You might be worried about making bi-weekly or monthly payments and thinking about how to get rid of payday loans. Is there any way out?
Well, no need to worry, buddy! We are here to help you! Here we have listed some of the best possible ways to get rid of payday loans during this pandemic!
Temporarily stop paying off federal student loans and mortgages
Do you owe a federal student loan? Or have you taken out a federal mortgage loan?
If yes, the CARES Act can save you from making loan payments for the time being! Yes, you heard it right!
In the case of federal student loans, you can stop making payments up to September 30, 2020. No interest will be accrued during this period.
Also, I have good news for you! According to a recent memorandum from President Trump, the suspension of federal student loan payments will be applicable until December 31, 2020.
You can save the amount of money you would have made as your student loan payments up to December 31, 2020. You can use those dollars to repay your payday loans.
Secondly, if you owe federal mortgage loans, the CARES Act can help you in this pandemic situation.
If you are going through financial hardships due to COVID-19, you can request forbearance for up to 180 days. If needed, you can request forbearance for an additional 180 days.
And guess what?
No additional interest, penalties, or extra charges will be levied on you for requesting forbearance!
So, by making lower monthly payments or no payments at all during the forbearance period, you can dedicate those funds to repay your payday loans.
Take home equity lines of credit (HELOC)
Well, as the name sounds, a HELOC works like a credit card. Depending on the equity in your home, you can borrow money up to a credit limit set by the lenders.
The credit limit of a HELOC usually depends on your credit score, the amount of equity you have in your home, and the appraised value of your home.
In most cases, the credit limit of a HELOC is the difference between 85% of the appraised value of your home and your remaining mortgage loan amount.
Let’s say, you still owe a mortgage of $200,000. And the appraised value of your home is $300,000. That means, your equity in your home is $100,000.
85% of the appraised value of your home = $255,000
Your credit limit = $255,000 – $200,000 = $55,000
A HELOC provides you with the flexibility to borrow money whenever you need it within the drawing period, which is usually about 10 years. You can pay off the loan in the repayment period which starts after the draw period is over.
Also, as a HELOC is secured by your home, the interest rate is usually much less than payday loans.
You can take out a HELOC to get rid of your payday loans with ease and shell out much less for interest payments.
However, taking out a HELOC has some disadvantages too! Because you are keeping your home at stake. During this pandemic, many people are losing jobs or getting a pay cut.
So, if you lose your job or there is a huge reduction in your paycheck, you might be unable to repay the loan on time. And if you can’t repay the HELOC on time, it can lead to foreclosure.
Besides, a HELOC usually has a variable interest rate. So, your monthly payments can change depending on the interest rate. If the interest rate becomes high, it can burn a hole in your pocket to make the necessary payments!
Tap your retirement savings
Does your employer offer a 401k?
If yes, the CARES Act allows you to withdraw money up to $100,000 from your 401k. If you can repay the amount within 3 years, you won’t have to pay any penalty. You can claim a refund on taxes as the distributions will be taxed in 2020, 2021, and 2022.
So, you can withdraw money from your 401k account and consolidate your payday loans. By doing so, you can make single monthly payments on your multiple payday loans at a much lower interest rate.
But I would suggest that you consider tapping your retirement savings as a last resort to get out of the debt trap.
If you lose your job during this pandemic, your 401k loan will be due in 60 days. It might be difficult for you to pay off the loan within this short span.
If you fail to repay within 60 days, the IRS (Internal Revenue Service) and your state will consider it as a withdrawal. Eventually, you will owe both federal and state taxes along with a 10% withdrawal penalty.
Also, withdrawing money from your 401k will hurt your retirement savings in the long run. You may have to compromise with the plans you have made for your golden years.
Opt for professional help
The worst part of payday loans (pdls) is the incessantly high-interest rates. Besides, there are high finance charges along with rollover charges. If you have multiple pdls paying off, your situation can be more difficult.
I understand that handling payday loans is a cumbersome process. So, what if a company handles all your debt stress and offers you debt relief?
Seems impossible? Well, it’s not!
For that, you need to approach a genuine debt relief company! They will analyze your financial situation along with your debt amounts thoroughly. Based on that, they will suggest an apt debt elimination plan that will help you to get rid of payday loans.
Usually, you have 2 options to repay your payday loans:
Payday loan debt consolidation:
The debt relief company can help you bundle your multiple debt payments into single monthly payments at reduced interest rates. They will try to negotiate with your lenders to reduce the incessantly high-interest rates of your payday loans.
Once your lenders agree, you can make single monthly payments, for your multiple pdls, to the debt relief company. In turn, the company will distribute the money among your lenders.
So, by opting for payday loan debt consolidation, you have to shell out much less as interest rates will likely be reduced. Besides, you won’t have to worry about managing your multiple pdls anymore.
Payday loan debt settlement:
The financial experts of the settlement company will try to negotiate with your lenders to reduce your outstanding balance amounts and waive off any late fees and other charges.
Once your creditors agree, you can start making single monthly payments for your multiple payday loans to the settlement company. These payments will be saved in a trust account.
Once enough funds are accumulated in the trust account, the settlement company will pay off your lenders as per the negotiated amount. And you will get rid of your payday loans quickly by opting for a payday loan debt settlement.
However, you have to pay a service charge to the settlement company. So, talk to the settlement company about their charges before you opt-out of their services!
I hope that the above tips will help you to get rid of payday loan debt during this pandemic. So, don’t wait! Because the more you wait, the more collection calls you will receive. In addition, legal payday lenders can file a lawsuit against you for unpaid debts. So, it’s better to work on how to get rid of your payday loans asap.
Once you become debt-free, manage your finances in a better way. And please try to refrain from these loan sharks as much as possible!