How to Stop Payday Loans Debt
If your payday loan debt never seems to go away despite your best efforts, you may be in the ‘payday loan trap,’ a debt cycle that is difficult to escape when it’s urgent.
You are not alone among the 12 million Americans who took out a payday loan this year. Here are some measures to help you escape this trap.
Payday Loan Debt Relief
1. Consolidate or settle your payday loan debts.
Consolidation services combine all of your payday loans into one payment schedule. This is the best way to pay off payday loans but beware of frauds. We highly endorse DebtHammer, which only accepts clients they can help.
Payday loan consolidation has two forms—first, a debt consolidation loan. For example, you can refinance a high-interest short-term loan with a low-interest long-term loan. If you choose this path, the US government advises you to consult a credit counselor first.
Payday loan consolidation solutions are a unique breed. In this situation, a third company will take all of your loans and charge you a set monthly fee. They will help you stop lenders from automatically debiting your account (avoiding overdraft penalties) and negotiate directly with lenders to find a solution. You will generally pay a fraction of what you owe payday lenders.
2. Pay Down High-Interest Loans First
Start by listing all your loans.
Read each loan agreement carefully.
Always pay off your highest interest loans first. You owe more since interest is compounded.
Non-payday loans, such as credit card loans, should be prioritized due to lower interest rates. Credit card debt is also an issue, but it has lower interest rates than payday loans.
It may take some research to determine your APRs for each loan, but knowing one has the highest interest rate will help you prioritize.
3. Paying Plans Extending
You may not like payday lenders, but they want their money back. Notification of inability to pay may result in lower terms or interest rates. Avoid talking to their debt collectors and supervisors.
Ask if they have extended payment plans (EPP). It doesn’t hurt to inquire. Ask around because payday sales reps aren’t always the most honest individuals.
Extensive payment plans are likely if your lender is a member of the Community Financial Services Association of America (CFSA). Ask before your loan’s due date – the final business day.
Before signing a repayment plan, make sure you fully understand the terms. There is no such thing as a free lunch so that they may switch evils. A longer payback time may result in higher interest rates.
4. Apply for a Personal Loan
Payday loans aren’t the only type of loan.
A home equity line of credit (HELOC) is a personal loan used to pay off larger loans.
Cash advances are expected on credit cards, but bad credit may preclude them.
Most of these require some credit history, preferably a 580 credit score. Credit reports from Experian, Equifax, and TransUnion are free from various sites like Credit Karma. Other credit bureaus are more likely to be scams.
5. Apply for a Credit Union Payday Loan
Because they don’t have shareholders, federal credit unions tend to be smaller and less profit-driven. They frequently provide “payday loans” (PALs). Here are some PAL statistics from NerdWallet:
- Awarded to credit union members who have been members for one month.
- Amounts range from $200 to $1,000.
- Affordable, with a maximum annual percentage rate of 28% and a processing fee of no more than $20.
- Repaid in full after one to six months; no rollovers.
- A maximum of three PALs per borrower every six months.
According to NerdWallet, only 1 in 7 credit unions offers these loans. Call a credit union to find out whether they provide these loans.
6. Nonprofit Credit Counseling
In finance, payday loans are among the most complex. A credit counselor can help you understand the fine print and build a plan to get out of debt.
Payday debtors can’t afford to spend a lot of money on a credit counseling firm. Fortunately, several non-profit organizations provide free debt counseling and financial planning.
Credit counseling is available at many military posts, credit unions, municipalities, and schools. It never hurts to phone around and see what possibilities you have.
Usually, they won’t have a magic bullet for you. However, they can assist you in understanding your financial status and create a budget to help you get out of debt. The hard part is sticking to it.
Be wary of companies posing as charities. Scammers abound in this world. Do your research to ensure the offering is legitimate. A deal that seems too good to be true usually is.
Visit the Federal Trade Commission (FTC) for further information on choosing a credit counselor.
7. Get Money from Friends & Family
Asking friends, relatives, and neighbors for money to pay off loans is one alternative. It’s humbling, but a no-interest loan from a buddy can help you get out of the payday loan rut.
Many churches, mosques, and synagogues offer anonymous giving programs to help needy members.
8. A Pay Advance Request
Asking for an advance can be beneficial if you have a solid working connection with your boss. People who have shown themselves often get wage advances.
Be honest with yourself. Help your employer understand that faster payment means less interest and fees. Mention how less stressed you are, the better you can work.
Consider working extra hours to earn more money and cultivate goodwill, especially if overtime is paid.
9. Work Extra
If you work more than 40 hours in a week in the US, you are eligible for overtime compensation. This means that every hour worked over the standard workweek of 40 hours. You get 1.5 times your hourly pay.
You’re earning more per hour, which adds up quickly.
10. Side Jobs for Extra Cash 10
In today’s gig economy, side occupations abound. Uber, Wag, and Doordash are legitimate ways to earn extra cash. Use your spare time.
11. Don’t Get New Payday Loans
This is vital. No new payday loans!
Do what you must. Save money, work extra hours, borrow from friends, and consult a credit counselor. The short-term respite isn’t worth the long-term debt alleviation.
Contrary to popular belief, personal finance is not an easy subject. There are dozens of issues to track, and the stakes are considerable. It’s also deeply emotional, and many of us carry financial baggage from our childhood upbringing.
The numbers prove it. Americans never achieve their financial goals. The average American has a non-mortgage debt of $25,483 and saves less than 8% of income. According to a recent poll, 77% of Americans are bothered about their finances.
The American school system fails to teach people how to manage money. Many Americans never take a budgeting, tax, or credit management class. It sets everyone else up to fail.
People strive to change it in both the free market and higher education. Articles, podcasts, webinars, and more abound. Investing in your education will help you avoid any financial problems.
Getting out of the payday debt trap is difficult but necessary for financial security. You’ll feel better and be able to start planning your financial future once payday loans are no longer a burden. Being debt-free and financially secure is worth the effort.