Payday loans are often seen as a helpful way to get access to cash when you need it, but they can also lead to debt if you’re not careful. Here, we’ll explain to you not only how payday loan debt happens but also give you tips on how to get out of it.
Millions of people take out these high-interest loans every year and may struggle to pay them off, so just know you are not alone in this. If you don’t think there is a way out of this situation, just know you are wrong!
Here we will provide you with 5 ways how to get out of a payday loan debt.
1. Request an Extended Payment Plan
Check if you are able to request an extended payment plan from your lender. This will give you more time to repay the loan and usually comes with no additional fees.
The first step is contacting your lender and explaining your financial situation. You will of course be asked to provide proof of income and expenses and explain why you cannot repay the loan on time. Once your lender approves your request, they will send you a new repayment schedule.
Be cautious, as this is not a long-term solution to eliminate payday loan debt. You will still need to repay the full amount of the loan you took out, plus interest and other fees but just have a new plan for doing so. If you’re once again unable to make the payments on time, you may be faced with additional charges or even legal action from your lender.
2. Look for a Debt Settlement Program
A debt settlement program is a program specially designed to help you negotiate with your creditors to lower your balance. This can be a good option to pay off payday loans if you have a lot of debt and can’t seem to make your payments on time and in full.
When you enroll, you will stop making payments to your lenders. Instead of this, you will need to start making payments into an account set up by the debt settlement company. The money in this account will be then used to pay off your debts.
This company is there to negotiate with your lenders on your behalf. If they are successful, your lender will agree to lower your balance and give you more time to pay everything back.
One thing to keep in mind is that you will likely still have to pay taxes on the forgiven debt.
3. Consider Credit Union Payday Alternative Loans
Another way to get out of payday loan debt is to consider a payday alternative loan from a credit union. These loans usually have lower interest rates and better terms than traditional payday loans can offer you.
Credit unions are there to help their members, so they will be open to assisting you in creating a more functional budget and helping you get on a path to financial freedom.
Members of these unions have more understanding and are typically more open to negotiating terms that will fit your situation better.
4. Seek Out Alternative Loans
Payday loan debt can be difficult to escape. The high-interest rates and fees make it hard to pay off the loan, and you may find yourself taking out new loans to pay off the old ones.
So, how to get rid of payday loans if you are stuck in this cycle of debt?
One option is to seek out alternative loans. There are many lenders who offer personal loans with much lower interest rates than payday loans have. It’s not unlikely that you can actually find a lender who is willing to work with you to create a payment plan that fits your needs.
There are also some other payday loan alternatives available which we will cover later on.
5. Declare Bankruptcy
These loans can be a huge burden. As you cannot just stop paying payday loans legally and hope everything will go away, we suggest you look into declaring bankruptcy.
Bankruptcy can help you get rid of your previous debt. However, don’t overlook that there are some drawbacks to this option. The first of them is that the bankruptcy stays on your credit report for up to 10 years. This will make it difficult to get approved for loans and credit cards in the future.
Secondly, declaring bankruptcy may not actually get rid of all your payday loan debt. In some cases, the lender may still be able to collect the money you owe them. And lastly, filing for bankruptcy is an expensive process. There are court fees and attorney’s fees that need to be paid as well.
Before you decide to declare bankruptcy, try speaking with an attorney as it can help you understand all of your options in this difficult situation.
What Happens If You Default on a Payday Loan?
Defaulting on a payday loan can have severe consequences. The lender may decide to pursue legal action against you, and you may end up having to pay much more than the original amount you borrowed. In other cases, you may even end up in jail if this payday loan debt piles up too much. If you find yourself in this situation and don’t know how to get out, it’s important to act quickly and seek professional help to get debt-free as soon as possible.
What Are the Better Alternatives to Payday Loans?
Feeling tempted is quite common with these loans and many people go ahead and take them out before even considering payday loan alternatives
While payday loans can provide quick access to cash, they can also quickly lead to a cycle of debt that’s difficult to break from. Here, we will provide you with less risky options that can give you much-needed cash without these consequences.
- Personal loans. Borrowing money from a family member or friend is always a better option. Your terms will be a lot more flexible and they will probably understand if you miss a payment.
- Other loans from a credit union or online lender. Credit unions and online lenders offer many loan deals that can not only be a better fit but also have fewer consequences, just be sure to choose a lower-interest rate offer.
- Use a credit card cash advance. Credit cards typically have higher interest rates than personal loans, but they are still lower than those on a payday and therefore a better option. Talk to your bank to get the most relevant information on their credit card offers.
There are many ways how to avoid a payday loan if you only take the time and do your research before agreeing to anything. All of these options we mentioned can help you even if you are stuck in a bad payday loan deal.
If you are unsure whether the deal you are presented with will lead to a cycle of debt like payday loans often do, consult a financial advisor.
Many people wonder every day how to pay off payday loans and if you are one of them don’t feel discouraged. There are many people willing to help you get out of this situation. The whole process won’t be easy, but it’s definitely worth it in order to put an end to this cycle of debt. The best way out is not a one-size-fits-all and will depend on your personal circumstances. We recommend you find a good financial advisor or even a lawyer to help you out. Even though this may seem like a pricey option it will be worth it once you get to be debt-free again.