General Credit Topics

[thrasher865]

Sorry if this is not the right forum.

A friend has gotten herself into serious debt with payday loans.  I knew a couple years ago that she had a title loan out as well as some payday loans, and basically screamed at her that she needed to cut out that behavior.  Unfortunately, I had no idea the severity of the situation at that time.

She now has over $5000 in subprime loans, with some amount of that being cash advances.  She won't tell me the specifics of her situation, but I'd like to help her.

She has recently told me that her payments on all these loans exceed her monthly income.  The only other bill she has is a car payment and insurance.  I have no experience with these types of loans.  Can anybody help me out with what her best options are?  The only two I can think of are bankruptcy, or have a relative co-sign for a lower interest loan to reduce her payment.  This would only work if she could get a loan for the entirety of her debt, excluding the car payment.  I have always told her that bankruptcy is a last resort, and she can get out of it without bankruptcy, but now I'm not so sure.

She has paid probably 10 times over the initial principal on most of these loans.  A couple of them are from "consumer finance companies" that are actually semi-reasonable loans.  The rest are payday loans that are charging whatever the legal max is.  Something like 400-500% effective interest.

Does she have any options to simply quit paying the loans, and force them to send the loans to collections or small claims court?  Is this a better option than bankruptcy?  I think she is beyond the point of worrying about her credit.  She's more interested in being able to live without worrying about how she's going to buy groceries.

Sorry if this post is rambling.  I'm trying to get to bed, and wanted to make the post while it was on my mind tonight.  I trust the members of this board, and would like to know what you would do in this situation.  What I will tell her first is to contact each of the payday loan companies to see if they will work with her.  I am going with the assumption that they will not, but we will see.

[payingoffdebt001]

IMO: I had one once and kept paying the extension fee (interest fee) then finally I couldnt pay it anymore, was getting no where and never having enough per paycheck for regular bills & foood.  They then began calling like crazy.  One day I finally talked to them and agreed on a settlement amount and they agreed to stop the interest. I had like 2 months to pay the agreed payments, and did it.  Then I said never again!  But they make these loans so easy and it seems something major always comes up and we have no one else to turn too.  But its a cycle that must be stopped.  Maybe by her ruining her credit with them it finally will be.  

I dont see the need for bankruptsy on this stuff.  Sounds like she might have more than one - she sould try and tackle the smaller one first.  For me, if it were to go into collections so be it.  But I'd pay it off as soon as I could and if necessary in payments too...so that way its at least  PAID collection. 

The BEST ANSWER is to get a loan from from a friend or family member and offer the payday loan company a settlement amount and pay it. 

[MattH]

It sounds like your friend is in very deep trouble, and there are unlikely to be any simple or quick solutions. Having a relative cosign seems like a rather bad idea to me: I doubt that would do much about the underlying causes, AND could ruin the relative's credit as well. If I were you, I would try to find a local advisor whom you can trust, because this sort of situation needs much more than sage words from folks on this board. Many of us regular posters have some knowledge and maybe even wisdom, but we are not there in person! We don't know the people involved, we don't know the full situation. This is likely to require deep knowledge that can only come from face-to-face conversations. Robert Heinlein wrote "money problems can always be solved by a person who is ot frightened by them," but if I were in your friend's shoes I would be very frightened indeed.
 
So I think you should look for a local advisor. Talk to folks you trust in your community asking for a referral. Your own lawyer or financial planner if you have one might be able to suggest somebody. Local social service agencies might be able to help but many are swamped with clients at the same time their budgets are getting cut; earlier today I was reading in the NY Times about Legal Aid turning away people needing help with bankruptcy filings. If you and/or your friend are members of a religious community, you might speak with your minister/priest/rabbi/guru/imam/etc. Anyway, seek trusted local help for your friend.

[drkaje]

Helping her will be pretty difficult without knowing the problem's scope.

[RobertEG]

+1

She needs the help of a professional debt counselor, not advice on how to heal a bleeding FICO score.

[thrasher865]

I can help her with the specifics of her situation. I know there are a lot of people in this community that have had to completely rebuild due to situations similar to this, so I figured I could find some people that have experience dealing with cash advances. I think what I will tell her for now is to contact each creditor and ask if they will settle with her. She can explain to the more stubborn creditors that those willing to work with her will be the first ones paid.

If anyone else has any experience dealing with these loan sharks, I'd appreciate your advice on the best way to deal with these while minimizing the impact to her FICO score. The less damage she does, the less rebuilding will be required. No more preaching is necessary.

[drkaje]

It's not about preaching.This will likely come across the wrong way but... if you come on a public forum and ask for advice about financial mismanagement, some of what comes back ain't gonna be pretty.

How can you help without knowing how bad the problem is? Someone here might have dealt with a specific company and has contact info or know what they will settle for.

If she can't pay them now, how is settling possible?

What's the rest of her credit profile look like? Maybe there's a BT offer she can qualify for.

I really haven't heard much good about payday loans.

Payday loans are apparently getting replaced with loans for new car tires. Basically, people buy one tire and finance three. Default and lose 3 tires. Apparently, the demographic this appeals to would rather go without necessities than drive on old tires. A buddy's brother works for one of the companies in Texas and the return rate is actually higher than payday loans, LOL!

[thrasher865]

The rest of her profile is not pretty. She is not going to get approved for anything and her previous CC accts are already closed. Her income is significantly higher than when she got in this mess. She was trying to do anything to get by until she graduated, thinking with her income that she could easily get out from under this. I adamantly told her that would not be the case. She didn't listen. She has told me she would be willing to sit down with me and go over her situation in detail. I'd just like to know the best way to handle payday loans, because I've never had one. So I don't know what action to suggest to her.

Thanks for the response.

[IOBA]

thrasher865 - I think the consensus is to get the big picture from your friend.   Then call each creditor (payday loan) and ask to do a settlement.   

When you have the information - how much was borrowed, how much has been paid, you will be able to better negotiate a settlement.  A settlement may be that she makes one or two more payments and then the debt goes away.  It may mean that her current balance is $500 and they will accept $250  and call it done.

When you have more information - feel free to post it and people may have suggestions on how to deal with a specific company.

[cassembler]

Like many of the above posters, I agree that step 1 is to get a 100% complete picture of the situation. Get a "statement" on each of the outstanding loans all on the floor. Then, prioritize.

But thie bigger picture (and this might be for the "Relationships and Money" forum) is your relationship to her and her relationship to her money. That could get really, really complicated.