Are you in a debt trap? Many hard-working people facing financial hardship turn to high interest loans, triggering a downward spiral and compounding the crisis. When traditional banking systems reject them based on poor credit or high debt-to-income ratios, they are forced into a predatory lending cycle.
Severe financial stress impairs long-term decision-making. Some people panic when facing a medical emergency, utility disconnection or eviction notice that requires immediate cash. Those who have never used high-interest loans before may be lured by aggressive tactics that Payday, title, and subprime lenders use to market to vulnerable communities, promising instant approval with few background checks.
A downward spiral is often triggered by a Payday loan, car title loan or high-interest credit cards. In a Payday loan, where the typical APR is from 300 – 500 percent, borrowers must roll over the loan into a new one when they cannot pay, adding additional fees every two weeks. In a car title loan, where the typical APR is 200-300 percent, the borrower risks losing the vehicle. This could take away his or her ability to commute to work and lead to a loss in wages. Others take out multiple credit cards with high interest rates, which can be anywhere from 25-36 percent. Borrowers then often make only minimum payments which typically cover only the accumulating interest, leaving the principal balance untouched.
Breaking the cycle requires making a conscious decision to stop taking on high-interest debt and to begin active intervention by working with a credit counseling agency. These are agencies that can provide financial education, help you negotiate lower interest rates, replace multiple high-interest credit card debts with a single, lower-interest fixed personal loan, and assist in formally requesting hardship arrangements with creditors.
If the debt has become severe, legal protection may be the right next step forward. A Chapter 7 or Chapter 13 bankruptcy can halt collection calls and restructure or discharge your debt. For more information, schedule a free consultation by calling 318.746.7467.
