How to Get out of Payday Loans

Get Rid of that Debt

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Feel like you’re in a debt trap? If your payday loans have turned into a weekly routine, it’s time to get out. Repeatedly borrowing or rolling over payday loans is an expensive habit, and the money you spend on fees will prevent you from getting back on your feet.

You’ve got several options for getting rid of payday loan debt.

A Different Loan

Almost any other loan will be more affordable than a payday loan.

Instead of continuing to use payday loans, try different sources of money. Small community banks and credit unions are your best bet for getting approved, especially if you don’t have great credit. Some online lenders also cater to borrowers with less-than-perfect credit (but there are plenty of scams online, so start with some of the online lenders listed here or reputable peer-to-peer lending platforms).

Instead of renewing, consolidate your payday loans with a more affordable loan, and then start paying off the consolidation loan. Borrow just enough to pay off your existing debt (and maybe enough to keep you from getting another payday loan) – and nothing more. It might seem like you’re borrowing from Peter to pay Paul, and you are, but you’re borrowing on much better terms. The key is to move away from payday loans going forward. You’ll have more time to repay, and you’ll pay lower finance charges.

If you can’t get approved, consider asking somebody with good credit to co-sign for the loan. This person will essentially guarantee (by putting their credit on the line) that you’ll repay on-time. If you don’t, your co-signer will be 100% responsible for paying off your loan – so it’s a huge responsibility and risk for that person.

Got Cash?

If you’ve changed your mind about a payday loan that you recently applied for (or you came into some cash shortly after borrowing), try returning the cash. Some payday lenders allow you to reverse the transaction within one business day of borrowing (typically before the close of the following business day) at no cost.

Extended Repayment

When times get tough and you are unable to repay your payday loans, contact your lender and ask about your options. Some lenders offer extended payment plans and other forms of short-term relief. The “friendliest” lenders – including many of the large brick-and-mortar payday shops you see along busy streets – belong to the Community Financial Services Association of America (CFSAA), which has guidelines for setting up payment plans.

Come up with Cash

Sometimes finding more cash in the budget is your only option. There are two ways to do that: earn more income, or cut expenses. Neither is attractive, but they’re both very effective.

Extra income: if at all possible, find extra work – just long enough to get out of any existing payday loan debt. Working more is probably the last thing you want to do, especially if you’re already spread thin. But think of the income as more than just the wage you earn – it’s also the money you avoid spending on numerous payday loan fees.

That can make the difference between spiraling into debt and getting back on your feet.

Sell stuff: you can also bring in cash by selling possessions. Again, it’s not fun, but it’s better than paying finance charges, and working more might not be an option.

Cut costs: if bringing in cash isn’t an option, you’ll have to reduce spending until you’re back in control of your finances. That means cutting down to the bare bones: make every meal yourself, and bring your lunch to work. Cut unnecessary costs like cable, and find inexpensive ways to stay entertained.

Set Yourself up for the Future

Once you’re on your feet, you’ll want to avoid going back to payday loans. You can do that by building a strong financial foundation.

Emergency fund: set up an emergency fund so you have cash on hand when you need it.

Start by setting aside a few hundred dollars, then build it up to a thousand. Eventually, you should have three to nine months’ worth of living expenses in cash, which should cover most of life’s surprises. But start small now and work your way up.

Build your credit: to get affordable loans easily, you need good credit. If your credit is poor (or you don’t have any credit to speak of), you can establish credit over time. Start by getting a small loan secured with cash (or try a secured credit card). Make all of your payments on time, and your credit will slowly improve. Then it will be much easier (and more affordable) to cover larger expenses.

In Over your Head?

If you’re deep in a payday loan trap, speak with a licensed credit counselor (start at NFCC.org). They can help you dig into the details of your budget and potentially work with your creditors to find a way out. Bankruptcy might be an option, but it’s a big step, and one you should only take after plenty of consideration and discussion with a local attorney.