Payday loans can be tempting when you need cash right away. These loans are available regardless of your credit score and provide immediate access to the cash you borrow for a short period. Unfortunately, payday loans are also extremely expensive, with interest rates hovering around 400%, according to the Consumer Financial Protection Bureau. This often leads to the payday loan debt trap many borrowers find themselves in.
If you have payday loan debt, you need to get out of it now and avoid this type of loan in the future, breaking free from the payday loan cycle. It is difficult, but the steps you will need to take to get out of payday loan debt include:
- Request a repayment plan with better repayment terms from your lender
- Using Low-Interest Debt to Pay Off a Payday Loan
- Commit to no longer borrow
- Pay extra on your personal loan
- Consider debt settlement or bankruptcy
- Seek assistance from payday loan relief programs
To better understand the payday loan debt repayment process, let’s take a look at each of these steps in more detail.
Request a repayment plan
The first step in getting out of payday loan debt is to request a repayment plan from your payday loan lenders. Many lenders are willing to work with borrowers to create a more manageable repayment schedule. If the lender agrees to modify the repayment terms, it could help you avoid additional fees and interest charges, making it easier to escape the payday loan debt trap.
With the interest and fees so high on payday loans, it can be almost impossible to make payments while on a budget. The good news is that you may have options to lower your payments and avoid the payday loan debt cycle.
Some states require payday lenders to allow an extended payment plan that gives you more time to pay off payday loans without incurring additional penalties or fees. This can help you make your payment on time and stick to a manageable payment schedule. However, laws vary from state to state, and your lender may have the right to charge you a fee for entering into a repayment plan.
Regulation of payday loans can be found on the National Conference of State Legislatures website, where you can learn about the laws in your state.
Even if your state does not require lenders to provide a payment plan, lenders may be willing to work with you if they are concerned that they will not receive anything otherwise. So it doesn’t hurt to let your lender know that you can’t continue paying as planned and need to find a solution.
Asking for a payment plan is much better than taking out more payday loans or getting caught in a payday loan trap because too much of your budget goes toward payments on the loans you already have.
Using low-interest debt to pay off a payday loan
There are other types of alternative loans that are much more affordable than payday loans.
Payday Alternative Loan offered by credit unions is an example of a loan you could get quickly and use to pay off existing debt. You can also apply for a debt consolidation loan.
A debt consolidation loan is simply a new loan that you can use to pay off other existing debts. Often, debt consolidation loans combine several existing debts into one large loan. But you can decide which debts to include in your consolidation to avoid falling into a payday loan trap and explore more alternative loans.
While some lenders specifically advertise “personal debt consolidation loan,” it is possible to consolidate debt with any type of personal loan:
The key is to shop around and find a loan at the most affordable rate and on the most favorable terms possible, ensuring affordable payments.
If you can get a personal loan, you can significantly reduce the interest rate and the borrowing costs that you pay compared to payday debts. More of your money pay off your principal balance so that you can pay down your lower-interest debt.
And personal loans come with fixed repayment schedules that typically give you several years to pay off your loan. This extended repayment period can make your monthly payments more affordable, providing financial relief. That way, you won’t have to borrow more money when your paycheck doesn’t stretch enough to pay for everything you owe and cover expenses.
You can also use other types of loans, such as home equity loans, to consolidate your debt, but these can take longer to qualify, lead to higher closing costs, and put your home at risk. as a guarantee.
Commit to no longer borrow
Once you borrow with a payday loan, the high fees and short repayment period associated with your loan can sometimes make it difficult to stop borrowing. Many payday loan borrowers end up in a cycle of payday loan debt, taking out one loan after another or even taking out additional payday loans at the same time. It can quickly lead to financial disaster when a large chunk of your paycheck is pledged to lenders before you even get it. One alternative to consider is exploring Payday loan consolidation companies who can help you lower your interest rate and negotiate a more manageable loan term.
Unfortunately, at the end of the day, you can’t borrow money to get out of debt, especially with high-interest loans like payday loans. We must break the cycle of debt by not making more credits. However, it can be difficult if your paycheck doesn’t extend far enough due to the regular payments you are already obligated to make.
The best way to make sure you don’t borrow again is to have a detailed budget that you live on. Calculate your income each month and add all your essentials, monthly bills, and living expenses. You will need to ensure your expenses do not exceed your income. If this is the case, you will have to keep borrowing forever, and you will never be able to get rid of your payday loan debt. A payday loan consolidation program could be a helpful tool in managing your debt and getting your financial situation back on track.
If your monthly income doesn’t cover your everyday expenses, start looking for places to cut back on your expenses. This could mean cutting coupons to cut your food budget or finding a roommate to make rent more affordable. If you are running out of money to cover your everyday expenses, you may need to cut spending to the bone, but it is necessary to do so, at least in the short term, to get out of unsecured debt.
Making additional payments is essential to achieve financial freedom and pay off your debt as quickly as possible. When you make the extra payments, it will cost you less overall to pay off your debt and lessen the time it takes to eliminate your unsecured debt.
Paying extra on your loan agreement will reduce the balance faster because all the extra money is spent on the principal. And the more you reduce your balance, the less interest you will pay since interest is charged on a lower amount.
You can make additional payments by living on a conservative budget that cuts down on expenses. You can also look for additional cash to increase your payout. To find extra money to pay off your payday loans, consider the following:
- Doing overtime
- Work alongside
- Sell things you don’t need
Consider drastic solutions like bankruptcy
Sometimes an average borrower may have differing views on a repayment plan that makes payday loans affordable for them, and they may not be able to get a single loan that makes payday loan repayment affordable. This can lead to a cycle of bills that keeps the average payday loan borrower in debt.
If you cannot make your payments on time and continue to cover your essential monthly expenses, you may have no choice but to try to settle your debts or file for bankruptcy.
Debt settlement involves making an agreement with the creditors to pay less than the total owed and have the rest of your debt canceled. Debt settlement attorneys or debt settlement companies can negotiate this agreement with payday lenders, but you will have to pay a fee.
You can also negotiate this agreement by informing payday lenders that you cannot pay as promised. This approach often works best if you offer a lump sum payment of a portion of your debt in exchange for forgetting your debt balance.
Just be aware that lenders usually won’t take a settlement unless you’ve missed regular bills – and debt collectors might already be in pursuit. Furthermore, debt settlement is hurting your credit score. You will also want to get your agreement in writing before paying anything.
If debt settlement doesn’t work and payments are unaffordable, bankruptcy may be your only answer. Bankruptcy will allow you to pay off eligible debts, including payday loan debts where you’ve been missing your regular bills.
The process by which debts are discharged depends on whether you file Chapter 7 or Chapter 13. Chapter 7 requires you to assign certain assets to the bankruptcy estate so creditors, such as debt collectors, can be partially paid. Chapter 13 requires you to make payments on a three to five-year payment plan before the debt balance related to those regular bills is written off.
Bankruptcy hurts your bad credit score, but it can get you out of a deep hole if you have a lot of payday loans and other debt you can’t afford to pay off. Once your debt has been discharged and is no longer collectible, you can start rebuilding your credit. It is possible over time by living within your means and getting a secure credit card to develop a positive payment history that you pay off on time.
How Can You Pay Off Your Personal Loan Debt?
In the end, there is no one right approach to getting payday loan debt repayment. Turning to a financial institution for help and seeking credit advice can guide you in deciding what’s best for your situation.
Finding a repayment plan makes sense if your state requires lenders to authorize them or your lenders are willing to work with you. Taking out a new loan with manageable loan amounts at a lower rate to pay off payday loan debt may work if you qualify or if a loved one will allow you to borrow. It is possible to pay extra on your loans if you can work more or sell additional items to earn more money. Aim to make minimum payment commitments and slowly clear off the debt to improve your financial situation.
But if none of these options work for you, debt settlement or bankruptcy may be the only way to free yourself from payday loan debt finally.
Consider each option carefully, weigh the pros and cons, and determine which solutions are viable, such as extended payment plans offered by your current lenders. Be sure to initiate discussions within a business day to avoid further financial repercussions or potential legal action. Start working on your approach today and stick to a dedicated period of time because you want your payday loans paid off as quickly as possible before they cost you even more.
