How To Get Out Of Debt With Payday Loans

How To Get Out Of Debt With Payday Loans [9 Options for 2022]

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How To Get Out Of Debt With Payday Loans

While payday loans can serve a constructive purpose, more often than not they can leave borrowers in a worse state than when they sought the loan in the first place. Payday loans are often described as a loan trap, one which can be difficult to escape from.

In many cases, hapless payday loan borrowers are unable to return to debt-free status because the likelihood of the debt accruing too rapidly to deal with is so high. Nonetheless, if you do feel trapped by a payday loan, all is not hopeless. You can take steps to reduce your debt and improve your financial situation, although it will take some time and effort.

Here are several options you have for getting out of trouble with payday loans, including one or two that can help you avoid needing to ever take out a payday loan in the first place. 

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How To Get Out Of Payday Debt

How To Get Out of Payday Debt

Wondering how to deal with payday loan debt as well as how to avoid getting into debt in the first place? Learn how to get rid of payday loan debt with these 9 options below.

1. Set Up an Emergency Fund 

Before you ever get yourself into a dire financial situation in the first place where you need to obtain a payday loan, it may make sense to begin building an emergency fund. An emergency fund is an account or private money stash that is set aside for financial emergencies. The primary goal of this account is to deliver someone from emergency situations as well as to come to your aid in times of need, especially when the unexpected occurs. You can build an emergency account over time by setting aside a little bit of your discretionary income in a separate bank account. 

Building up an emergency fund when things are good can give you financial peace of mind; you’ll know that if the unexpected strikes and you need money at a moment’s notice it is readily available for you. Having this fund on hand may help you avoid requiring a payday loan altogether in some cases or may reduce the total amount of money you’d otherwise have to borrow. It may help ensure you can begin paying off any payday loan you have faster than you otherwise would be able to without an emergency fund, too. 

2. Bootstrapping: Consider Living a Life of Budget 

If the stress of payday loans is too much for you and you want to become free of them, you may need to consider bootstrapping, or tightening your belt and reducing your overall monthly expenses to prioritize debt repayment. Payday loan interest rates are typically high, so it is best to avoid adding another burden to the already high cost of living. Instead, commit to spending less and living on a tight budget. If you free up funds to use towards debt reduction, you’ll be able to truly accelerate your debt repayment. 

3. High-interest Loans Should be Prioritized First

If you do decide to start bootstrapping, how should you go about eliminating your payday loan debts, anyway? While there are several different ways to begin your journey out of the payday loan trap, paying off those loans with high-interest rates should be your first priority. Typically, as you assess your debts, it may seem intuitive to pay the biggest outstanding debts first. While you’ll eventually need to deal with these debts, it is almost always a better idea to pay off high-interest debt first, or at the very least prioritize them when making debt payments.

Paying off your debts with higher interest rates first will slow down the speed at which you are accruing more debt, and in the long run, this will help you accelerate debt repayment. In order to do this, you’ll need to first determine what the interest rate is for each of your outstanding payday loans, and then begin prioritizing how you’ll pay each of them off. 

4. Ask For Help From Family and friends 

If you are seeking to pay off debts accrued from predatory payday loans, a good place to look for financial assistance is from friends and family members. In many cases, you may have better luck borrowing money from the people who know and care about you than you would from a traditional lender, especially if you have poor credit. You may be able to get much better repayment terms than you otherwise would with a bank or online lender, too. 

However, before you borrow money from anyone you know, make sure you evaluate the potential consequences. If you find yourself unable to repay any loan you borrow from those close to you, you could end up irreparably damaging important relationships, and you may put unnecessary hardships on your friends or family as well. However, if you have family or friends who are ready, willing, and able to lend you money, this can be a great way to help you tackle that payday loan debt. 

5. Look for Alternative Lenders

Looking for alternative lenders to try to offset the bigger loan is one good way to get out of payday loan debt. You can do this by finding a lender who specializes in debt consolidation loans. Nearly any reputable lender will offer lower interest rates than payday loans, but you may be required to have a good credit score before being approved for a loan. However, even if your credit score is low, you may still be able to obtain a loan through a small community bank. If community banks do not approve you, credit unions may be another option to consider.  When seeking out a good credit union, make sure to narrow your search to ones that accept less than stellar credit scores.

Rural payday loan borrowers may find challenges unique to them as well. Typically, finding an available loan with favorable terms can be difficult, especially if you live in a rural area. However, this does not imply that you should stick with your payday loan, especially if the interest and other terms make paying it off impossible, sticking with the payday loan may just enable your debt to continue accumulating.

Instead, you should definitely seek assistance with the approval. If your credit score is poor or insufficient for the loan you require, one option you could consider is obtaining a co-signer with good credit. Note that your co-signer will be liable for a loan default and will suffer credit damage if the loan is not paid on time, however.

After you obtain the loans, the next step is to use them to consolidate your debt. Repay the payday loan, and then start dealing with the still high debt balance you have, albeit on better terms. 

As with payday loans, however, you should also be wary of the alternative lender you choose, as you can easily run into the same kind of exploitative practices you find in the payday loan industry if you are not careful.

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6. Seek Out and Use a Non-Profit Credit Counseling Service

When it comes to managing high levels of debts from payday loans, you should never go it alone. Instead, get expert help to assist you in developing a plan and making tough decisions when it comes to debt and your finances. If you’re looking for help with your payday loan debts, one place you should definitely look is credit counselors. 

Professional credit counselors, in addition to assisting you in understanding the conditions and terms of your loans, can assist you in developing a plan that will get you out of debt in the shortest amount of time possible. Best of all, instead of a cookie-cutter approach, a credit counseling specialist can help you develop a payday loan debt reduction plan that is tailor-made for your specific financial situation, too. 

While some credit counselors do charge clients, many more are nonprofits; these organizations often offer affordable rates, and many provide services that are altogether free of charge.  The military, credit unions, and universities are just a few of the places where you can get free debt counseling. However, in most cases, you must be affiliated with these organizations first. As with any other financial organization, make sure the credit counselor you choose is a legitimate nonprofit.

Typically, what you will get from them is advice, which will be given only after they have sat down with you to understand your situation. Credit counselors will often help you create a budget and a plan of action and then will follow up with you to help gauge your progress. 

7. Consider Adopting an Extended or Favorable Repayment Plan

Lenders need their money back, so they will often work with you to get it. They will most likely listen to your situation in order to understand it and offer solutions that will help you repay the entire amount you owe them. If you have a good conversation with the payday lender to whom you owe money, you might be able to get the interest rate reduced or the loan terms changed in your favor. This may not be done by the lender’s loan collector or supervisor, in which case there is no need to contact them.

What you need to convey to determine if whether they offer borrowers extended payment plans. You should not expect to get this information from their sales representative; instead, consult with a few members of the company’s staff. In some cases, they may not have such plans, but it never hurts to inquire. It also doesn’t hurt to request it before the loan’s due date.

Make sure you understand the new terms you are negotiating and that you do not unintentionally put yourself into a worse debt situation than when you started. If you cannot obtain favorable repayment terms from the payday loan company, you may need to look at other options to reduce your debt. 

8. Use Debt Settlement

If you’re having trouble making a dent in your outstanding payday loan balances, one option you could try is debt settlement. Debt settlement companies work on the behalf of borrowers to negotiate directly with their creditors. In some cases, a debt settlement company can get their clients more favorable repayment terms or reduced outstanding debt balances; debt settlement agents can sometimes get creditors to forgive outstanding debt balances altogether, too. These companies usually charge clients a fee for their services. 

However, while debt settlement can often be an effective means to tackle debts like payday loans, there are drawbacks. For starters, there is no guarantee that the debt settlement company will secure better terms for a borrower with their creditors. Additionally, the borrower will have to cede control of his or her debts to the debt settlement agent, too, which can be a challenging situation for many people used to having control over their own finances. 

9. If all Else Fails, Consider Bankruptcy

If you feel that you are hopelessly in debt with payday loans and feel that you’ll never be able to repay them and that continuing to hold them will cause your financial situation to further deteriorate, then bankruptcy can also be considered as a method of dealing with your debts. Bankruptcy is a process in which your debts will be eliminated to varying degrees through court action. In some cases, bankruptcy may eliminate your debts altogether, while in other cases it may liquidate your assets in order to address your debts. 

Bankruptcy should always be considered a last resort. Going through this process will be painful, and it will have an impact on your ability to obtain loans, or even get an apartment, for years to come. Make sure you have exhausted all other debt reduction options with payday loans before you resort to bankruptcy. 

Conclusion

Dealing with payday loans can be difficult and draining on your finances. When payday loans are not paid back rapidly, they often carry a high-interest rate and hefty penalties that can allow the balance to rapidly accrue. Getting into a payday loan debt trap like this can make it hard to pay your other bills or save for the future. So, if you find yourself in a tough financial situation with payday loans, consider some of the options discussed here, and start working to become debt-free as soon as you can. 

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