Tips to getting out of payday loan fast

Payday loans can be a handy option for people with money problems. However, these loans also feature high interest and fees. Plus, the short repayment term can make the loan repayments unbearable.

 According to a survey, most people who apply for payday loans do not pay up on time. As a result, lenders roll over the loans. But this comes with more fee charges. Most consumers find themselves in a cycle of payday loan debts due to these rollovers. Rollovers mean using new debt to repay the original loan. 

Lucky enough, it is now possible to get out of a payday loan debt. There are effective strategies that you can put in place to ensure that you live a debt-free life again. These strategies include debt counseling and debt consolidation programs. In this article, we are going to explain how you can use both methods. 

Ways to get out of payday loan debt

Request for a payment plan extension

Most payday loan lenders are members of the CFSA (Community Financial Services Association of America). CFSA members are, by law, required to offer extended repayment plans with no extra charges. This applies to borrowers who find it difficult to pay their payday loans on time.

Note that you won’t qualify for this extension more than once a year. The extension period varies from one state to another. One advantage of extended payment plans is that they give you more time to clear off your debt. Plus, there are no extra fee charges, and you also won’t have to deal with collection agencies. 

Start a debt avalanche

Have you ever heard of the term debt avalanche? Well, this means making a higher payment for loans with high-interest rates. For the other debts, you only pay the minimum monthly repayments. This gives you a chance to clear all your high-interest loans fast. And the quicker you clear these loans the lower your interest will be. 

Enroll in a debt management plan

Enrolling in a free credit counseling service has also proven to be a working strategy. Nonprofit agencies offer this service for free. The professionals will help you create a manageable debt repayment plan. You will be dealing directly with a credit counselor. 

Credit counselors have experience in assessing financial situations. He or she will come up with helpful steps for repaying your debts. Credit counselors may also suggest that you go for a debt management plan. 

Debt management doesn’t work the same way as debt counseling. Here, the credit is the one tasked with negotiating with your creditors. They will discuss whether it is possible to lower the interest rate and fees for your loans. On the remaining balance, they will also discuss how much you are going to pay every month. This gives you the chance to clear your debts on time and also stop the annoying collection calls.

 Debt management services are either free or paid. It all depends on who you work with and how serious your situation is. Find a reputable nonprofit credit counseling company to work with. You can find these agencies though places like;

  •  The Consumer Financial Protection Agency
  •  Credit Unions 
  • Your local financial institution
  • Military bases
  • Universities and 
  • Housing authorities 

 You can also search for organizations by your state. Ensure that the company has approval from the United States Trustee Program. 

Apply for a payday alternative loan

Applying for a payday alternative loan can also be a good exit strategy. The loan amount ranges from $200 to $1000. The loans have a repayment plan of up to 6 months. The maximum fee charged is $20 and the maximum interest rate for these loans is 28%. This is a cheaper option than what you could have otherwise paid to the payday loan lenders. 

There are several requirements you need to meet before applying for a payday alternative loan. The main one is that you must have joined the federal credit union at least one month before applying for the loan. 

Some of these organizations also go to the extent of offering free financial counseling. You can find a reputable federal credit union at MyCreditUnion.gov. 

Get a personal loan

Traditional personal loans are unsecured. You don’t need collateral when applying for loans. This makes the loans a great option to consolidate or refinance your payday loans. You can get this loan from credit unions, banks, and alternative lenders. Personal loans also have a lower interest rate than payday loans. These loans have a longer repayment term (between 12 or 60 months). This makes it easier to afford loan repayments. 

The only downside is that you need to have a good or fair credit score to qualify for a personal loan. If you can’t qualify for a personal loan, another alternative is a secured loan. An example is secured personal loans. With these loans, you have to give an asset as a guarantee for payment. These loans have a lower interest rate, which means that you will save money in the long run. But you may risk losing your asset if you don’t pay the loan as agreed. 

Seek help from friends and family

Asking for money from family members or friends can at times be embarrassing. But if you can’t qualify for a loan, then this is one option worth considering. For one, you won’t have to worry about high-interest rates and tight loan requirements. Even when they want you to refund the money with interest, the charges won’t be as high as what online lenders charge. 

Besides, you can even repay the money in smaller amounts until the debt is cleared. Note that borrowing from friends or family can affect your relationship. That is if you fail to adhere to your agreement. According to a survey done in February 2020, 1 in every 3 people who borrow money from friends or family do not pay back. 

Look for a side hustle

You can also get extra income by making use of your free time. This can be getting a side hustle like;

  • Doing freelance writing
  • Becoming an affiliate marketer
  • Selling products like shoes and clothes online
  • Selling photography
  • Finding a part-time job

You can also consider renting your assets online. This can be a spare room in your home or even a parking spot. 

Go for debt settlement

There are two ways to go through the debt settlement process. 

First option

Hire a debt settlement company

A debt settlement company can negotiate with your creditors to reduce your debt. This is how the process works;

First, you need to stop making payments to creditors. Instead, you will only be making one payment to the debt settlement company. 

The debt settlement company will start distributing the company to your creditors. During this time, your credit score can be greatly affected. Some creditors can even take you to court. Additionally, the IRS can tax the money you saved to pay these creditors. They consider it as a taxable income. 

Second option

Negotiate directly with creditors

Instead of a settlement company, you can negotiate with the creditors directly. Explain to them your financial situation. They are likely to offer a manageable repayment plan. You can be surprised that most of your creditors will be willing to listen to you.

File for bankruptcy

Filing for bankruptcy can also help you escape payday loan repayments. This however should be the last option to consider. First of all, bankruptcy is a long and time-consuming process. Your credit score will also be affected. Additionally, a bankruptcy entry can remain in your credit score for up to 10 years. 

Therefore, only file for bankruptcy if your situation cannot be solved in any other way. 

Before filing for bankruptcy, it is mandatory to get pre-bankruptcy credit counseling. This will help determine whether you need to file for chapter 7 or 13.

 

Chapter 7

A portion of your assets can be seized and sold off to pay your debts. Some assets are exempted from this. These assets vary from one state to another. 

Chapter 13

With this option, you must clear off your debts within 3 to 5 years. However, it is not the lenders that set the repayment terms. You will instead use a court-approved repayment plan. Both types of bankruptcies can help eliminate your debts. 

Frequently asked questions

Can payday loan lenders allow negotiating for better terms and interest rates?

Some lenders allow negotiating for a better repayment plan. They can offer an extended repayment plan that makes it easier to pay off your loans.

How can I stop paying my payday loans legally?

It is against the law to stop paying loans that you had committed to pay. The lender can either sue you or forward your loan to debt collection agencies. It is however possible to stop direct deductions from your bank account. This is how the process works;

  • Call the lenders directly and inform them not to withdraw the money anymore 
  • Inform the bank that you have revoked the authorization
  • Monitor your account to confirm that these payments are not going through

Does the government offer payday loan relief options?

 

No, the government doesn’t offer payday loan relief programs. But the Federal Trade Commission takes action against any payday loan lender who takes advantage of the consumer’s situation.

I think my payday loan lender broke the law, who do I contact?

If you are sure that your lender is doing something illegal, contact; 

  • the consumer financial protection bureau or
  • the state attorney general for advice