Payday loans are both easy and deceptive. Without a doubt, you will procure immediate cash in the event of an emergency. However, if you are not cautious, you can find yourself in a never-ending debt cycle. Since the interest rate is so high, you will be stuck in a debt period for a long time.
It's simple to rely on those loans, and you may be able to roll over a single loan several times to avoid paying it back. However, quick access breeds a costly habit, and the money you spend repaying those loans will keep you from getting back on the right track.
Worse than that, if you default on a payday loan, lenders can quickly send the debt to collections, leaving a negative mark on your credit file that makes borrowing money in the future difficult.
If you've taken out a payday loan and are now trapped in a cycle of increasing debt, your situation may seem bleak, but there are options that can help you get out of it. Fast action will help you keep costs down and find better short-term credit options.
It's difficult, but not impossible, to get out of payday loans. Here's how to get yourself out of a payday loan situation. There are some options for getting out of payday loan debt. We'll go through these tactics in depth below, as well as ways to keep the issue from recurring.
Tips To Get Out Of Payday Loans
1. Get a loan from a different source
If your payday loan is compounding and you don’t see any way to pay it off, get another form of loan from a different lender to pay this off. You can approach some formal lending institutions to get a personal loan.
You can also go for debt consolidation. Try with a new lender if you can get just enough loan to pay off your payday loan. This way, you will get a better interest rates and escape from the payday loan nightmare.
If your credit score is posing a problem, you can request someone to co-sign the new loan. Your spouse, siblings or parents, with good credit standing can help you in getting a better loan to pay off your payday loan.
2. Speak to your Payday Loan Lender
Payday Loan lenders do want their money back. So, if you tell them that you are having difficulty in paying back the loan, they would be willing to work out something that will be a win-win situation. They may offer you an extended payment term, or agree for a debt settlement plan. Either way, you will be on a fast track towards closing down your payday loan.
3. Seek help from family and friends
They are your go to people always. Go to them now. See if you can borrow from them and pay off your high-interest payday loan. You can then repay them. Most of them won’t even charge an interest for the loan.
4. If you have an Emergency Fund, use it
If you have some kind of deposit or investment, for a rainy day, it may be a good idea to use it now. You may have saved it for some unforeseen situations, but paying off your payday loan will allow you to get out of a high interest debt. You can then create that emergency fund in no time. If possible, just use a part of the fund to give you some breathing space while you are waiting for other forms of funds to pay off this payday loan.
5. Seek Professional Help
If you are unable to achieve any results in spite of any of the above steps, it is time to accept that you are in over your head and seek some professional help. There are many credit counselling companies that will help you with your debt. They will liaise with the lender and get you a solution. They may even guide you on how to manage your finances to pay off the loan. It is worth paying them as they are good at what they do.
Additional Reading: What Are The Pros And Cons Of Payday Loans
What should I do once I have paid off my payday loan?
Not get another payday loan! This may sound extreme but is an honest suggestion. Payday loans are very attractive. But if you look closer, they charge an annual interest rate that ranges from 300% - 400%. Even credit card interest rate is only around 45% per annum.
Borrowers are mirage by the daily interest rate number, which is just a single digit, and think that this is a very cheap alternative to traditional term loans. Before they realize that they are in too deep, it is too late.
Here is what you should do if you don’t want to fall into another debt trap;
1. Have a backup emergency fund: While you are acquiring assets, create a solid investment plan to cater to your emergency fund needs. There are so many investment avenues, like mutual funds, insurance plans, bank FDs and so on, that can help you in time of needs so that you don’t have to take that payday loan.
2. Cut expenses: You may have taken that payday loan for some unforeseen emergency, agreed; but, if you get into the habit of availing these loans to fulfill your unjustified urges and wants, then your financial planning needs some serious help. Be disciplined with your money, cut costs, get only what you need. A few occasional indulgences are fine, but ensure that your needs don’t exceed your income.
3.Have a plan for the future: Create an emergency fund and add to it regularly. You have to factor in inflation and ensure that your savings can meet future expenses. Build your credit score so that you can get affordable loans from formal lenders. This will negate the necessity of payday loans.
- How can I get rid of payday loans legally?
The only option is to pay them off. You can pay them off by getting an alternate loan from a different lender, use your savings to pay it off, or talk to them and get an extended payment plan.
- What happens if I stop paying my payday loans?
You will have to face some very unpleasant consequences. Payday loans come with high interest rates and can quickly lead you into a debt trap. If you stop paying them, the lender can turn over your case to collection agencies, who are known to use some unfavorable methods to recover the loan.
- Can the lender sue you for not repaying your payday loan?
Yes, they can. Payday loans are like any other loans and come with legal clauses. So, failure to repay the loan can lead to legal proceedings against you.
- Can you negotiate with payday loan lenders?
Yes, you can do it. In fact, it is a very good option when you are unable to repay the loans. The lender also wants his money back so you can negotiate with them for a solution that will be win-win for both of you.
- How long do payday loans stay on your credit report?
Payday loans stay on your credit report for 7 years.