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 cash that you borrow for a short period. Unfortunately, payday loans are also extremely expensive, with interest rates that can hover around 400%, according to the Consumer Financial Protection Bureau.
If you have payday loan debt, you need to get out of it now and avoid this type of loan in the future. It is difficult, but the steps you will need to take to get out of payday loan debt include:
- Request a repayment plan 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
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
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.
Some states require payday lenders to allow an extended repayment plan that gives you more time to pay off payday loans without incurring additional penalties or fees. 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.
You can find out about the laws in your state by consulting the National Conference of State Legislatures.
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 that you need to find a solution.
Asking for a payment plan is much better than taking out more payday loans because too much of your budget is being absorbed by payments on the loans you already have.
Using low-interest debt to pay off a payday loan
There are other types of debt that are much more affordable than payday loans.
Alternative payday loans offered by credit unions are an example of a loan that you could potentially 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.
While some lenders specifically advertise “debt consolidation loans,” 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.
If you are able to get a personal loan, you can significantly reduce the interest rate and the borrowing costs that you pay compared to payday loans. More of your money will be used to pay off your principal balance so that you can actually pay down your 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. 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. In fact, many people end up taking out one payday loan after another or even taking out multiple 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.
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 by not making more credits. However, it can be very difficult if your paycheck doesn’t extend far enough due to the 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 what your income is each month and add up all your essentials and discretionary expenses. You will need to make sure that your expenses and 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.
If your income doesn’t cover your 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 expenses, you may really need to cut spending to the bone, but it is necessary to do so at least in the short term so that you can get out of debt.
If you really want to pay off your debt as quickly as possible, making additional payments is essential. When you make the extra payments, it will cost you less overall to pay off your debt and lessen the time it takes to get rid of your debt.
Paying extra on your loan 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:
- Doing overtime
- Work alongside
- Sell things you don’t need
Consider drastic solutions like bankruptcy
Sometimes you may not be able to agree on a repayment plan that makes payday loans affordable for you, and you may not be able to get a new loan that makes payday loan repayment affordable.
If you find yourself unable to make your payments 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 type of agreement with payday lenders, but you will have to pay a fee.
You can also try to negotiate this type of agreement yourself by informing payday lenders that you do not have the capacity to pay as promised. If you can offer a lump sum payment of a portion of your debt in exchange for forgetting your debt balance, this approach often works best.
Just be aware that lenders usually won’t take a settlement unless you’ve missed payments – and 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.
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 that creditors can be partially paid. Chapter 13 requires you to make payments on a three to five-year payment plan before the debt balance is written off.
Bankruptcy hurts your credit score, but it can get you out of a deep hole if you have a lot of payday loans and other debt that you can’t afford to pay off. Once your debt has been discharged and is no longer collectible, you can start rebuilding your credit. This can be done over time by living within your means and getting a secure credit card that you pay off on time to develop a positive payment history.
How Can You Pay Off Your Personal Loan Debt?
In the end, there is no one right approach to getting payday loan debt repayment.
Finding a repayment plan makes sense if your state requires lenders to authorize them or if your lenders are willing to work with you. Taking out a new loan 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.
But if none of these options work for you, debt settlement or bankruptcy may be the only way to finally free yourself from payday loan debt.
Carefully consider each possible option, weigh the pros and cons, determine which solutions are viable, and then act. Start working on your approach today because you absolutely want your payday loans paid off as quickly as possible before they cost you even more.