So get rid of the debt of payday loan now
Payday loans can be tempting when you need cash right away. These loans are available regardless of your credit rating and provide instant access to cash that you can borrow for a short time. Unfortunately, payday loans are also extremely expensive with interest rates that can be close to 400% according to Consumer Protection Office.
If you are in debt on a payday loan, you need to get out now – and avoid these types of loans in the future. It’s hard, but the steps you need to take to get out of payday loan debt include:
- Request a repayment plan from your lender
- Use lower interest debt to pay off a payday loan
- Make a commitment not to borrow anymore
- Pay extra for your payday loan
- Consider a debt settlement or bankruptcy
To better understand the process of repaying payday loan debt, let’s take a closer look at each of these steps.
Request a repayment plan
With interest rates and fees so high on payday loans, it can be almost impossible to make payments and still live on a budget. The good news is you may have options to cut your payments.
Some states employ payday lenders with an advanced repayment plan that gives you more time to repay payday loans without incurring additional penalties or fees. However, the laws vary from state to state, and your lender may have the right to charge you a fee for completing a repayment plan.
You can find out the laws of your state by checking the National conference of the legislative bodies of the countries.
Even if your state doesn’t require lenders to provide a payment plan, lenders may be willing to work with you if they fear they won’t get anything else. So there is no harm in letting your lender know that you cannot keep paying as planned and have something to work out.
Asking for a payment plan is far better than taking out more payday loans as it will take up too much of your budget in payments on the pre-existing loans.
Use lower interest debt to pay off a payday loan
There are other types of debt out there that are much cheaper than payday loans.
Alternative payday loans offered by credit unions are an example of a loan that you can potentially get quickly and use to pay off existing payday loan debts. 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. Debt consolidation loans often combine multiple existing debts into one large loan. However, 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 from:
The key is to look around and find a loan at the cheapest interest rate and on the most favorable terms.
When you are able to obtain a personal loan, you can significantly reduce the interest rate and borrowing costs you pay compared to payday loans. More of your money will go towards paying off your principal balance so you will actually be able to pay off debts.
And personal loans have fixed repayment schedules that usually 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 end up borrowing even more money if your paycheck doesn’t go far enough to pay everything you owe plus expenses.
You can also use other types of loans like home equity loans to consolidate debt – but these can be more time consuming to qualify, have higher closing costs, and put your home at risk as collateral.
Make a commitment to stop borrowing
Once you start borrowing 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 at a time, or even several payday loans at the same time. This can quickly lead to financial disaster if a large chunk of your paycheck is promised to lenders before you even get it.
The bottom line is, unfortunately, you can’t borrow out of debt – especially with high-interest loans like the payday loan. You need to break the cycle by stopping borrowing. However, this can be very difficult if your paycheck doesn’t go far enough due to the payments you are already committed to.
The best way to ensure that you are no longer borrowing is to have a detailed budget that you will live on. Find out what your monthly income is and add up all of your essential and voluntary expenses. You need to make sure that your expenses and expenses do not exceed your income. If so, you will have to borrow forever and you will never be able to get out of debt on the payday loan.
If your income can’t cover your expenses, look for places to cut your expenses. This can mean cutting out coupons to cut your food budget or getting a roommate to make renting more affordable. When you have a drastic shortage of cash to cover your expenses, you may really need to cut the spending to your bones – but at least it is necessary in the short term to get you out of debt.
If you really want to pay off your debt as soon as possible, it is important to make additional payments. When you make additional payments, it will cost you less overall to pay off your debts and reduce the time it takes to be out of debt.
If you pay extra on your loan, the balance will decrease faster because all of the extra money will be used for the principal. And the more you reduce your balance, the less interest you will pay as the interest is calculated on a smaller amount.
You can make additional payments by living on a careful budget that cuts expenses. You can also look for extra cash to add to your payment. To find some extra cash to pay off your payday loan, here are some things to consider:
- do overtime
- Work part-time
- Sell things you don’t need
Consider drastic solutions like bankruptcy
Sometimes you cannot agree on a repayment plan that will make payday loan affordable to you and you will not be able to get a new loan that will make payday loan payment affordable.
If you find that you are unable to make payments and still meet your essential monthly expenses, you may have no choice but to try to settle your debt or file for bankruptcy.
Debt settlement involves making an agreement with creditors to pay less than the total amount owed and to cancel the remainder of your debts. Debt settlement attorneys or debt settlement firms can negotiate this type of agreement with payday lenders – but you have to pay fees.
You can also try to negotiate this type of agreement yourself by letting the payday loan lenders know that you will not be able to pay as promised. When you can pay off part of your debt in a lump sum to pay off the rest of your debt, this approach often works best.
Just be aware that unless you missed payments, lenders typically won’t agree to a settlement – and that paying off debts is affecting your creditworthiness. You should also get your agreement in writing before paying anything.
When debt settlement isn’t working and payments are unaffordable, bankruptcy may be your only answer. Bankruptcy enables you to pay off legitimate debts, including payday loan debts.
The process by which debt is paid depends on whether you are filing Chapter 7 or Chapter 13. Chapter 7 requires you to surrender some assets to the bankruptcy estate so creditors can be partially paid. Chapter 13 requires you to make payments under a payment schedule for three to five years before the balance of the debt is canceled.
Bankruptcy is bad for your credit, but it can allow you to get out of a deep hole when you have lots of payday loans and other debts that you cannot afford. Once you have settled your bankruptcy debt and it is no longer collectible, you can begin your loan recovery process. This can be done over time by living within your means and getting a secure credit card that you pay on time to develop a positive payment history.
How can you get your debts paid off on payday loan?
Ultimately, there is no one right approach to paying off payday loan debts.
Getting a repayment plan in place makes sense if your state requires lenders to do so, or if your lenders are willing to work with you. Taking out a new loan at a lower interest rate to pay off payday loan debts can work if you can qualify or have a loved one to loan you out. You can pay extra on your loans if you can work more or sell extra items to make more money.
But if none of these options work for you, debt settlement or bankruptcy may be the only way to finally get rid of payday loan debt.
Carefully consider each possible option, weigh the pros and cons, determine which solutions are viable, and then take action. Start working on your approach today because you definitely want to get your payday loans paid off as soon as possible before they cost you any more money.