Payday loans are small, short-term cash advances used to cover up any financial emergency. They are very useful for unexpected situations like- medical bills, car repairs or utility bills where you need instant cash. However, you can fall prey to a payday loan debt cycle if you are not careful to get out of your payday loan debts in time. Read the guide below to learn how you can manage and get out of your payday loan debt while avoiding falling into the vicious debt cycle.
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Easy Tips to Get Out of Payday Loan Debts
Here are ways to get yourself out of a payday loan debt:
- Approach Payday Loans with a Plan
You should never consider a payday loan if you have no way of knowing how you’re going to pay it back. The fees and interest can end up accounting for half your payments if you do not repay the loan on time.
It’s best to create a flexible budget that is comfortable for you with the intent of debt repayment as soon as possible. Part of the plan should be to avoid taking out further loans to pay off your payday loan.
- Seek Professional Financial Help
Consider your options for borrowing before deciding on a payday loan. You can talk with lenders at the Community Financial Services Association of America (CFSA). The association offers extended payment plans (EPPs), which give borrowers four extra pay periods to repay a loan.
Sometimes the smartest means to get out of debt is to seek credit counseling, which can be customized to meet your financial needs. Your credit counselor can help you navigate through the choices to resolve your debt. You may consider debt consolidation as a strategy to lower your interest rate.
- The Last Resort: Bankruptcy
For some people who have fallen too far in debt, the best solution is bankruptcy, which wipes the slate clean and offers you a fresh financial start. Even though bankruptcy is often associated with financial failure, it can sometimes be the best solution for getting out of debt.
Be sure to consider the consequences and how it will hurt your credit for seven years. It’s best to get in touch with a financial advisor who can explain your responsibilities when you file bankruptcy.
Also Read: Why Timely Payment of Payday Loan Matters
How to Avoid a Payday Loan Debt Cycle?
Before you apply for payday loans, you should be aware of the payday loan laws of your state and know your legal rights to avoid the payday loan debt cycle. Avoid falling into some of the most common traps, and you will be able to use payday loans effectively without getting caught up in the debt cycle with the following tips:
- Know Your Rights
Payday lenders are not designed to trap borrowers in the payday loan debt cycle. They should find consumers who can pay back the loan on the agreed upon schedule that is discussed directly with the consumer before the loan is provided. Building up too much debt results in loan defaults which hurt both parties. Ask your lender questions before agreeing to anything.
- Look for Professional Payday Lenders
Most payday lenders are professional and follow all lending guidelines when providing a loan to a consumer. Lenders do not want to “trap” a consumer as this usually results in an uncollectible debt where all parties lose. When a consumer cannot pay back the loan, there are additional charges, and this can lead to a cycle of more substantial debt which can be a significant burden to the consumer. Professional lenders want a consumer who can pay back the loan on time so that they will want to use the service again in the future, if necessary.
- Take Payday Loans Only for Emergencies
You should understand that high-risk loans, for consumers with poor credit, are meant only as a stop-gap for emergencies and not a recurring debt. Payday loans should be used just for emergencies. Taking out loans too often or taking out loans you can’t pay will trap you in the cycle of debt.
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Tips to Get Out of Payday Loan Debt Cycle
Payday loans are a quick and convenient fix if you need cash in a hurry. Although they carry a higher average interest rate, the intended goal is to help you get the money you need quickly and easily. The drawback is the payday loan debt cycle that many people fall into when trying to pay off their payday loans. Consider these 5 tips to avoid the payday loan debt cycle.
- Look at the Bigger Picture
If you start to find yourself in over your head when it comes to the amount you owe, look at the bigger picture. Look closely at the percentage of credit card debt and payday loan debt that you have. Find out where the substantial amount of your money is going when you pay your bills each month.
- Focus on Higher Interest Debts
Credit cards and payday loans will often have the highest interest rates. Focus on paying these types of debts down as quickly as possible. Create a budget and determine just how much money you can afford to devote to these bills each month.
- Extended Payment Plans
Talk to the lenders who hold your payday loans and see if they will offer you an extended payment plan. Having longer to pay may provide you with an opportunity to avoid the need to borrow more from them. Negotiating an extended payment plan on your payday loan debt will put you back in control of your finances and minimize late fees.
- Turn to Credit Counseling
If you’re troubled with debts like payday loans, get the related assistance from credit counseling programs to find a way out. Select from among the prestigious, non-profit organizations that can help you walk through your financial state, offer you advice, and create a plan to tackle your debts.
- Use a Personal Loan
If you have several credit cards or payday loans, it might be a good idea to get a personal loan and consolidate all of your debt into one monthly payment. Combining your small debts reduces your risk of forgetting to pay one or not being able to pay one at all. A personal loan can pay to off several small accounts leaving you with one payment and a lower interest rate.
How Does Payday Loan Debt Consolidation Help?
You can quickly get stuck in payday loan debt and getting out of the problem might present many challenges. However, payday loan consolidation, which allows you to negotiate for low debt rates as well as consolidating multiple bills into one monthly payment, can make the walk through this fix easy. Here are some things about payday loan consolidation that you need to know. There are mainly two types of payday loan consolidation, including:
- Payday Loan Consolidation Program
This is a program more similar to a debt consolidation program. Through this program, loan consolidation companies closely work with your lenders to have your payday loan interests reduced, thereby making your payments more affordable. In the event where you have missed payments, your monthly payments are minimized by either reducing or eliminating the dues. How does this program work?
The payday loan consolidation program makes a payday loan consolidation company to accept one monthly payment from you and disburses the funds to your lender. This replaces your multiple bills with just one monthly fee.
- Consolidation Loan
This program works more similarly to debt consolidation loan by allowing you to pay off your multiple payday loans. On completion of the payday loans pay off, you can then pay for the consolidation loan on a monthly installment basis. Unlike the payday loan consolidation program which reduces your interest rates, this program makes your repayment period longer. Thus, making you pay a bit more.
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Benefits of Payday Loan Consolidation
Payday loan consolidation offers a wide range of benefits. These include the following:
- Your payday loan rates are reduced.
- Helps to makes your monthly payments affordable.
- Allows you to have a single monthly payment.
- Reduces/waivers late fees and over-limit charges.
- Helps you avoid creditor/collection calls.
- Impacts positively on your credit once your accounts are paid off.
- Requires no individual and different payments management.
- Makes it convenient for you to plan and budget due to fixed monthly payments.
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