How to Get Out of Payday Loan Debt in 10 Steps

Taking out payday loans may seem like a short term necessity, but if not repaid, payday loans can easily pile up into a mountain of debt.

Borrowers with high amounts of payday debt often find their debt rising despite making payments, simply because of the astronomically high interest rates.

Here are 10 ways to get out of a payday loan nightmare:

1) Prioritize High Interest Loans

Start by laying out all the loans you have – both payday and other types.

Chances are, some have higher interest rates than others. When tackling payday loan debt, you need to think about more than just the monthly payment; the interest is key. If you need help understanding your payday loan interest rate, use this calculator.

If you can’t make all of your monthly payments, always prioritize whichever loan has the highest interest rate.

Why is this important?

Because interest accumulates not only on the loan, but the interest you owe. Interest grows exponentially, so tackle high-interest loans first.

2) Negotiate With Your Lenders

Payday lenders may not be the most pleasant people in the world, but they do want their money back.

You can always contact your lender and ask for better repayment terms. Ask specifically for an ‘extended payment plan’, which is standard terminology most lenders will understand.

In order to get the best terms, tell your lender that you simply aren’t able to pay, and that you plan on filing for bankruptcy if you can’t get better terms. They might respond with threats, but simply stay calm and reiterate that you cannot afford to pay, and you think that bankruptcy is the only option available.

Bankruptcy is the worst option for a payday lender. For starters, it means they will only earn cents on the dollar. Additionally, it means going to court, which involves fees and headache for them. So it’s in their best interest to avoid you declaring bankruptcy.

3) Refinance with a Personal Loan

Many of those stuck in payday loan debt simply cannot qualify for other loans, but if you have a credit score above 600, it’s at least worth a try.

A personal loan is an unsecured loan that you pay back in installments over anywhere from 1 to 7 years. Interest rates can vary, but are usually capped at around 36%.

If you can qualify for a personal loan, use the cash to pay down your payday loans. Then make payments on your personal loan.

4) Refinance with a Credit Card Cash Advance

Many credit cards offer cash advances, some with 0% interest teaser periods.

Cash advance APRs are high – up to 35% or so – but not nearly as high as payday loans. Carrying a high credit card balance certainly will impact your credit score, but is well worth it if it means you can escape the payday loan cycle.

5) Borrow from Friends and Family

If you have friends and family who can afford to spot you some money, it can’t hurt to ask.

Nobody wants to pester their love ones with requests for money, but if it means less interest paid to your lenders, swallow your pride and ask.

Additionally, many religious and community organizations offer financial assistance to those in need.

6) Look Into Payday Alternative Loans

Some credit unions offer Payday Alternative Loans (PALs), which are short-term loans with reasonable interest rates.

The National Credit Union Administration sets rules and guidelines for PALs, which include:

  • Loan terms can be between one and six months.
  • Interest rates are capped at 28%.
  • Loan amounts are capped at $1,000.
  • Application fees are capped at $20.

Most credit unions will require you to be a member for some time before applying, so you may have to wait some time before you can apply for a PAL.

7) Reduce Discretionary Expenses

The secret to being debt free is to spend less than you make. It’s not rocket science, but does take a lot of discipline.

Think about how you can reduce expenses. Cook instead of eating out. Go to the park instead of the movies. Cancel subscriptions you rarely use. Get in the habit of saving money wherever you can.

8) Work Extra Hours

Are you working the maximum hours your employer will allow? Have you asked for overtime?

Working extra hours allows you to make more money, which can be used to repay your lenders. Additionally, working overtime usually means that you earn double your normal hourly rate.

Working extra hours also has an additional benefit – it’s less time you have to spend money.

9) Moonlight in the Gig Economy

If working extra hours isn’t possible, the gig economy makes it easy to earn some extra cash on your own schedule.

Whether it’s driving for Uber, delivering for Doordash, or shopping on Instacart, there are plenty of options for flexible work. These require no long-term commitment, and allow you to choose your own work hours. Join all of the platforms to see which ones pay the best and work best with your schedule.

10) Avoid Taking on New Payday Loans

Last but probably most important, you can’t get out of payday loan debt if you take on new loans. Avoid it at all costs.

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