How to Break Out of the Payday Loan Debt Cycle in 8 Steps or Less

how to get out of payday loan debt

If you’re facing a payday loan that you can’t keep up with or that seems to keep growing, you’re not alone.

Payday loans can cost you more than you ever intended to borrow in the first place. That’s because payday lenders intentionally structure payday loans to make them expensive and difficult to repay.

In fact, a Pew study found that the typical payday borrower would pay $55 every two weeks just to borrow $375. That’s equal to a 381% APR!

Additionally, a borrower typically pays $520 in fees over the course of five months before they manage to pay off the entire payday loan. This Pew video explains why borrowers can have such a hard time getting rid of their payday loans.

“The payday loan debt trap is a common experience for many payday loan borrowers, but there are ways that borrowers manage to climb out,” says Liana Molina, director of community engagement with California Reinvestment Coalition.

Here are some steps you can take to start tackling your payday debt, pay it off, and get out of the payday loan cycle.

How to get out of payday loan debt

1. Look at all your debts together

When you’re trying to figure out payday loans, you can get hyper-focused on the amount you need to pay. For instance, how to come up with the $375 you owe by your next due date.

But if you look at your whole financial picture, you might find other opportunities to save or repay this debt.

“Your starting point should always be to build a complete picture of your debt, including all loans, credit cards, etc.,” says Barry Stewart, an insolvency expert with 180 Advisory Solutions. “Make sure you record both amounts and interest rates on each.”

2. Prioritize high-interest debts

Once you know what you owe, to whom, and how much each debt is costing you, you can prioritize your payments.

“Prioritize the debt with the highest interest rate,” Stewart recommends. “Paying off those first and then moving onto debt with lower interest rates cuts the total you’ll end up paying.”

With fees that are equal to three-digit APRs, payday loans are most likely to be your most expensive debts. Even worse, you only have until your next paycheck to come up with the full balance – or you’ll face fees to renew the loan.

To wipe out a payday loan, you need to either restructure the debt or figure out how to come up with the full amount ASAP.

3. Ask for an extended payment plan

The way payday lenders structure payday loans makes them expensive and difficult to repay. Therefore, try and find a way to restructure your payday debt.

“You can ask to negotiate a payment plan with your lender,” Molina suggests.

You can also ask your payday lender if you can get on an extended payment plan (EPP), which will break your loan up into smaller installment payments. You’ll have more time to repay the loan, and you won’t be hit with additional fees or interest in the meantime.

Payday lenders that belong to the Community Financial Services Association of America (CFSAA) tend to be more flexible and will usually give you an EPP. Just remember that you’ll need to ask before closing on the last business day before your loan is due.

You’ll also most likely sign a new loan agreement with the terms of your extended payment plan. Make sure you read it carefully and understand the full terms before you agree.

4. Refinance with a personal loan

If your payday lender is not part of the CFSAA or is unwilling to give you an EPP, consider going elsewhere for money to cover this debt.

For instance, you can try payday loan debt consolidation with a personal loan. Keep in mind that you’ll need at least fair credit to qualify for most personal loans. Some online lenders, such as Avant, accept loan applicants with credit scores as low as 580.

If you have a credit card, you could also try getting a cash advance on the card to repay your payday loan. Just be careful since credit card debt is also high-interest debt. Plus, having high credit card balances can damage your credit.

Check Out Avant Personal Loans Here

5. Get a credit union payday alternative loan

Credit unions often offer small, cheap loans called payday alternative loans (PALs). You will likely have to be a member for at least a month to get a payday alternative loan.

But these loans can be an effective way to pay off an existing payday loan and replace it with an affordable payment plan. Credit unions that offer PALs typically lend anywhere from $200 to $1,000, with terms of one to six months.

6. Look into payday loan debt assistance

If you’re struggling with payday loans and other debts, payday loan debt assistance and credit counseling programs can help you find a way out. Look for reputable, non-profit organizations that offer debt counseling and help.

“Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs,” says the Federal Trade Commission.

Credit counseling will walk through your financial situation, provide you with advice, and set you up with a plan to tackle your debts. Some nonprofits also offer cheap, affordable loans to refinance or consolidate debts.

However, be wary of scams.

“With debt consolidation, there are scam artists who will actually make your situation worse,” Molina says. “If they’re making promises that sound too good to be true, or if they ask you to pay a lot of money for their services, then steer clear.”

7. Borrow from your support network

Another option to get the cash to pay off a payday loan is to borrow from your social group. While borrowing money from friends and family has its own risks, it can be an effective way to wipe out a payday loan and replace it with manageable debt.

If you attend church or are part of a religious community, consider asking for their help as well. Many churches provide charitable financial assistance and can help you pay off a payday loan.

8. Turn to your job for debt help

Alternatively, you can ask your employer for an advance on your paycheck. Many employers will allow you to get prepaid for work you’ve not done. But you have to be careful that you can afford to take this money and put it toward your payday loans without hurting your ability to cover other costs.

Ask your employer if you can pick up some extra hours to earn some more cash. Managers are often understanding of their workers’ financial demands and will try to help you out. If you can’t pick up extra hours with your main job, consider picking up some side gigs to get quick cash.

Break the cycle for good

Figuring out how to get out of payday loan debt is the first step to getting your finances on track. And it can be one of the hardest, but it’s worth it. Without a payday loan hanging over your head, you’ll be free to fix your money management and build lasting financial security.

And the next time you need a quick loan, remember to just skip the payday loans altogether.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
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