Payday loans are an unsecured form of high-interest debt with short repayment terms and high lender fees. Many people who turn to payday loans end up taking out multiple rather than one. This leads to a vicious debt cycle that can take months or even years to end.
If you’re struggling with multiple payday loans, here are the most effective ways to pay them off as quickly as possible.
How to get out of payday loan debt
The payday loan industry is worth billions of dollars. In America alone, 12 million people take out payday loans every year and pay $9 billion in payday loan fees. So, if you have multiple payday loans and are trapped in an endless cycle of debt, you’re not alone.
According to a recent survey, 93% of respondents regret ever taking out a payday loan. Along with this, 39% of those surveyed couldn’t afford to pay back their loan on or before the due date. This meant they had to take out at least one new loan to cover the first.
If you need payday loan help, there are some effective ways to get out of debt. This includes debt consolidation loans, payday relief programs, payday alternative loans (PALs), and debt settlement programs.
What is a payday loan?
Payday loans are short-term loans with extraordinarily high interest rates that, in some cases, exceed three digits. These small loans range from around $100 to $500, on average, though some lenders offer them in higher amounts. They also have a short repayment term of 2 to 4 weeks.
Part of the reason why these loans are so appealing is that they’re extremely easy to get. Payday loan lenders don’t require good credit – there’s no credit check, and some lenders will work with borrowers with bad credit or no credit at all. All that’s needed is some form of ID, an active checking account, and proof of income.
In theory, payday loans are a convenient way to cover emergency expenses like utility bills, groceries, or gas. But in reality, they’re difficult to regulate and come with sky-high interest and other fees that make them extremely expensive.
For example, the average payday loan is $375. After interest and lender’s fees, though, it ends up costing closer to $520. Because of these extra fees, most borrowers can’t afford to repay them in full with their next paycheck.
In some states, the annual percentage rate (APR) of payday loans can exceed 600%. Because of this and the debt cycle that comes with these loans, some states have outlawed payday lending altogether.
However, there are still around 23,000 storefront and online payday lenders in the United States. In contrast, there are around 13,673 McDonald’s in the country.
What’s a tribal lender?
Tribal lenders are essentially payday lenders that conduct their business on tribal land. Since they’re on a reservation, which the United States Constitution views as sovereign nations, they’re usually exempt from state regulations. Instead, they are only subject to federal and tribal regulations.
This makes them much riskier for borrowers. For one thing, they often get away with charging exorbitant interest rates, making their loans more expensive than traditional options. For another, these loans are much more difficult to refinance or discharge in bankruptcy.
Borrowers who take out tribal loans rarely benefit from the same consumer protections as those who take out traditional loans. Because of this, these loans should be avoided if at all possible.
What is the payday loan cycle?
Payday loans run on a predatory lending system that keeps borrowers in debt. These lenders primarily target people who are already struggling with their finances. Since they have such short repayment terms and high fees, people often can’t pay them back on time. So, they have to take out a new one to pay off the first.
However, every loan comes with its interest, fees, and repayment terms, making each one more expensive than the last. Some lenders offer rollover loans to those who know they won’t be able to pay off their loans on time. This gives the borrower more time to come up with the money, but it also means a larger loan balance and more fees. This is what’s known as the payday loan cycle.
More than 80% of all payday loans are rolled over into a new loan or renewed within 14 days of taking out the initial one. Around half of these are part of a loan sequence of at least 10 loans.
Even with a rollover loan, there’s no guarantee the payday loan borrower will be able to repay it when it’s due. In fact, around 20% of people who get a rollover loan end up defaulting on their debt eventually.
Better payday loan alternatives
Instead of taking out a payday loan, consider alternatives like cash advance apps or payday alternative loans (PALs).
Cash advance app
If you have a stable job and need cash quickly, a cash advance app could help. These apps let you request a small portion of your upcoming paycheck early. They’re best for those who have an emergency expense or bill that’s due shortly before they get paid.
Some of the best cash advance apps are:
- Earnin: Earnin is a free app (with optional tips) that lets you borrow $100 to $500, based on the hours you’ve already worked.
- Brigit: With Brigit, you can learn better budgeting skills and borrow up to $250 of your paycheck early. It costs $9.99 a month.
- Chime: Chime is another free app (tips optional) that lets you borrow $20 to $200, depending on your account activity. It also has a feature, SpotMe, that keeps users from overdrawing on their accounts.
Payday Alternative Loans
A payday alternative loan (PAL) is a short-term loan offered to members of credit unions. The two types of payday alternative loans are:
- PAL 1: You can borrow between $200 and $1,000 if you’ve been a member of a participating credit union for at least one month. Loan terms range from 1 to 6 months.
- PAL 2: Current credit union members can borrow up to $2,000 without a waiting period. Loan terms are 1 to 12 months.
Payday alternative loans are much more regulated than traditional payday loans. They have a maximum APR of 28% and have an application processing fee of around $20. Eligible borrowers can take out a maximum of three PALS within any six-month period.
How does payday loan debt consolidation work?
Consolidating multiple payday loans means rolling them all into one loan with a single payment, usually with a lower interest rate and better repayment terms. This helps borrowers get out of the payday loan trap and get back on their feet.
The two ways to consolidate payday loans are with a payday loan relief program or a debt consolidation loan.
Payday loan relief programs
Payday loan relief programs exist under many names, including payday loan consolidation programs, debt settlement programs, and debt management programs.
These programs are available through professional agencies and are designed to help people pay off multiple high-interest, short-term debts. Once you enroll, an expert will represent you and work with your lenders to reduce or settle your debts.
Sometimes, the company will negotiate directly with the lender to reduce the loan fees or interest rates. Other times, they’ll pay the lender the full balance and give you a new loan you must repay over time.
As with anything else, payday loan relief programs have their pros and cons. So, before signing onto anything, make sure you know what you’re getting into.
- Reduce the amount of total debt owed
- Get help from experts who can negotiate better terms on your behalf
- Charge simple monthly payments
- Debt relief companies won’t work with all lenders
- There’s no guarantee of success
- Most agencies charge a flat monthly fee that can be a financial burden for those already struggling with debt
- There are many scams
Debt consolidation loan (DIY consolidation)
A debt consolidation loan is an unsecured personal loan that combines multiple smaller debts into one. These loans have a lower interest rate than payday loans and come with a single, fixed monthly payment and term. This makes them easier to repay than several high-interest debts.
To qualify for the best rates, you’ll either need good credit or a cosigner with good credit. Shop around for the best loan before applying.
- Reduced fees and interest rates
- Longer repayment periods make paying off the debt easier
- Option to consolidate other unsecured debts such as credit cards
- The borrower is in more control than with payday loans
- Difficult to qualify without good credit, a low debt-to-income (DTI) ratio, and a stable income
- Loan terms and interest rates vary by lender
- Depending on the loan amount, it might not be enough to cover all unsecured debts
Types of Loans to help with Debt Consolidation
For anyone looking to pay off multiple payday loans, there are several types of loans and credit cards that help with debt consolidation.
Credit Card Balance Transfer or Cash Advance
A credit card balance transfer is where you move one high-interest debt to a new, low-interest account. These credit cards usually come with a 0% or low introductory APR that lasts 6 to 18 months. Some also come with a balance transfer fee that’s between 3% and 5% of the transferred amount.
As long as you pay off the full balance before the period ends, you won’t be charged any additional interest. However, if the card still carries a balance at that point, you might have to pay deferred interest.
Before getting a balance transfer credit card, use a calculator to make sure it’s a smart financial move. These calculators provide an estimate of your monthly payments based on the starting balance, balance transfer fee, and APR.
If you can’t afford to pay it in full, a balance transfer might not be the best option for you. Instead, consider taking out a cash advance on an existing credit card to pay off high-interest payday loans. This will incur additional fees and interest, but it’ll be less than what you were paying.
You can use a personal loan for nearly any expense, including renovations, high-ticket items, and consolidating debt. They’re offered through credit unions, banks, and online lenders.
There are two types of personal loans: unsecured and secured.
Secured loans require collateral. This makes them easier to qualify for, but riskier to the borrower since they could lose the collateral if they default.
Unsecured loans don’t use collateral. Instead, lenders factor in the borrower’s credit score, debt-to-income ratio, and income when determining their eligibility and rates. Borrowers with good credit (670+) tend to qualify for the best rates.
Installment loans are a type of personal loan. Common ones are auto loans, student loans, and debt consolidation loans. These loans are highly dependent on factors like your credit score, DTI ratio, and income. In general, a higher credit score means better terms and rates.
With an installment loan, you’ll have to make regular, fixed payments every month on a specific date. Typically, these loans have repayment terms of at least 6 months, which makes them more manageable than payday loans.
Since installment loans are essentially personal loans, you can use them to consolidate multiple payday loans. Just make sure you can make the monthly payments on time until the balance is fully repaid.
If you don’t qualify for traditional forms of financing, consider peer-to-peer (P2P) lending instead. This form of lending cuts out the third party and lets borrowers and investors work directly together.
P2P loans function similarly to personal loans, so you can use the funds for nearly anything, including paying off multiple payday loans. However, these loans do come with their interest rates (usually 6.4% to 36%), loan terms, and lender fees.
Benefits of payday loan consolidation
If you’re stuck in the payday loan cycle, payday loan consolidation can help in several ways.
Reduced fees and lower interest rates
Payday loans usually come with astronomical interest rates. It’s not uncommon to find APRs ranging from 300% to 400%. For context, a standard credit card or personal loan usually caps out at between 20% and 30% APR.
Considering the high interest rate of payday loans, it’s no wonder why many people fall into the payday debt trap. But with a credit consolidation service or personal loan, you can save hundreds or thousands of dollars over the course of the loan’s lifetime.
Flexible repayment terms
Personal loans usually have more flexible repayment terms that last between 12 and 84 months. Traditional lenders are also usually more willing to work with borrowers to adjust the plan based on their budget.
While longer loan terms typically mean paying more in interest over time, it also means more affordable monthly payments. This makes these loans harder to default on.
Flat monthly payments
Payday loans can become complicated very quickly, especially for those who roll over previous loans into new ones. With debt consolidation, you’ll only need to keep up with one straightforward payment plan and pay a fixed amount each month. As long as the loan covers the full balance of your short-term loans, this can alleviate a lot of financial stress.
To learn more about the pros and cons of debt consolidation, check out this video:
Alternatives to debt consolidation
Although debt consolidation can work, it’s not the only way to pay off multiple payday loans. If you can’t get approved for a personal loan or payday loan debt relief program, here are several other options that can help.
Ask for extended repayment terms
Some storefront and online cash advance companies offer borrowers an extended payment plan (EPP). This gives the borrower the chance to pay back the existing payday loan over a longer period. Typically, lenders offer this either because of state law or because they know they won’t get their money back otherwise.
If you currently have payday loans, contact your lender and ask for an extended repayment plan. They might charge a fee for this service, but it will typically mean lower interest or more affordable monthly payments.
There’s no guarantee the lender will agree to this plan. However, it doesn’t hurt to call and ask since most lenders would rather get some of their money rather than none of it back.
Work with a debt settlement company
A debt settlement company — sometimes called a payday loan consolidation company — is a company that offers debt relief by communicating and negotiating with your lenders for you. They work to get your debts settled for a lower percentage of what you initially owed.
Most debt settlement companies charge either a monthly service fee or a percentage of each debt settled. During debt settlement, the company may also advise you against making payments on your debts. This could result in late fees if negotiations fail, but it could also make the lender or creditor more likely to agree to settle the debts.
Debt settlement is not a guarantee. However, the average consumer sees a 35% to 50% reduction in their debts after paying the company’s fees.
Beware of scams, though, as there are many in this industry. Before working with a company, check their ratings on BBB.org or see if they’re licensed. If you’re looking for a reliable debt settlement company, Debthammer can help.
Work with a credit counselor
Nonprofit credit counseling agencies have certified credit counselors that will work with you to navigate your finances and get a handle on your debts. These companies often offer services like general credit counseling and debt management plans (DMPs).
DMPs are 3- to 5-year plans that let you combine eligible, unsecured debts into one monthly plan. You must make regular, on-time payments to the associated account until the enrolled debts are fully repaid. These plans usually come up with a small startup fee, as well as a monthly fee of $25 to $75.
The advantage of a debt management plan is that it can consolidate your payments into one and reduce how much interest you pay. Additionally, credit counselors know the current guidelines and laws set by the Consumer Financial Protection Bureau (CFPB), so they can provide the best guidance and support.
For a list of approved credit counseling agencies, go to the United States Department of Justice’s official website.
Talk to legal aid attorneys
If you’re still having trouble paying off multiple payday loans, seek out a lawyer who’s well-versed in debt settlement. A good lawyer can explain your rights as a consumer and advise you on how to get out of your payday loan problem. Some will work with you for free or at a reduced fee.
The Consumer Finance Protection Bureau has a list of legal aids in every state you can use to find a good lawyer. Alternatively, you can contact your state’s bar association for a lawyer referral service in your area.
File Chapter 7 bankruptcy
Around 800,000 Americans declare bankruptcy every year. However, bankruptcy is a last resort and should only be done if advised by a lawyer. With Chapter 7, you can discharge certain debts, including payday loans and other unsecured debts.
Keep in mind, filing for bankruptcy comes at a high cost, and not just financially. It could result in the seizure of your assets or garnished wages. It also stays on your credit report for 7 to 10 years and will ruin your credit. It will become more difficult to qualify for loans during that time, and though there are some financial services that offer loans for people who have filed for bankruptcy, the interest rates will be very high.
Laws that govern bankruptcy vary by state, so speak with a professional about your rights and what you can expect before filing.
Why do my credit score and credit report matter?
A person’s credit score and credit report help potential lenders and other entities like future employers or landlords gauge their creditworthiness. It also helps determine the rates they’ll receive when applying for financing and how much money they can potentially borrow.
Both the credit score and report come from the three major credit bureaus — Equifax, TransUnion, and Experian. However, you can also get a copy of your credit report from all three bureaus at annualcreditreport.com.
It’s a good idea to review your reports annually for errors like accounts that shouldn’t be there or duplicate balances. Any errors could negatively impact your credit score and future financing opportunities.
Try to build up your credit by paying your bills on time, keeping older accounts in good standing active, and keeping your credit utilization low.
The bottom line
If you’re having trouble paying off multiple payday loans, you’re not in this alone. There are several legitimate ways to manage or reduce your debts, including debt settlement and debt consolidation. It will take time to become debt-free, but the best thing you can do right now for your financial situation and credit is to take immediate action.
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Generally, the better your credit score, the better the terms you’ll get when applying for a debt consolidation loan. For decent rates, shoot for a 650+ FICO score. However, some financial services offer debt consolidation for borrowers with lower credit score, so you still have a few options.
The government will not help you make your payday loan payments, but there are some rules in place to protect you. Laws vary by state, but many state governments have put into place different rules and regulations related to payday loans. For example, states like Arizona and North Carolina ban payday lending entirely. Other states, like Montana and New Hampshire, have caps in place on the interest rates lenders can charge. At the federal level, the FTC also works to govern payday lending and protect consumers from deceptive advertising or predatory practices.
There are nonprofit debt consolidation organizations, such as credit counseling agencies, that offer debt relief to those who need it. Some services, such as general counsel, are free. Others, like debt management programs, come with a fee. Since they’re non-profit, these agencies don’t charge any fees before using their service.
Yes, but it depends on how much you owe and how much you qualify for with a singular loan. For example, a Payday Alternative Loan 2 will only allow you to consolidate up to $2,000. With good credit and income, a debt consolidation loan could cover a much higher balance.