If you’re already in over your head, don’t take out any more payday loans. If you do, you will only perpetuate the debt cycle and make it even more difficult to get back on your feet. Read our entire article, or use the table of contents below to get right to the information you need about getting out of payday loan debt for good.
Table of contents
We have all been through a cash-strapped situation, and the first thing to do is borrow money. As for lenders, they are always happy to offer you payday loans at ridiculously high-interest rates over short time periods. If you’re not keen and disciplined enough, you’ll find yourself in over your head with payday loans, unable to stop their cycle.
In this article, we look at these payday loans, their shocking statistics, how to get out of them for good, and alternative financing options to taking out payday loans.
What’s a payday loan?
Payday loans are short term loans you take when caught up in an emergency. To access them, you must go to a payday lender, usually a store or online, to request the money, which they will send to your checking account within 24 hours. They can offer you cash or checks or deposit them in your bank account or onto a debit card.
You must pay the amount loaned out on your next payday, either in lump sum or installments agreed upon with a lender. To be eligible for a payday loan, you’ll need to meet the following requirements;
- To be 18+ years
- Have an active checking account
- Valid identification documents
- Show proof of employment
The reality of payday loans
The payday loan industry is worth $9 billion, with over 23,000 stores across the US. The industry preys on the less fortunate to thrive. The accessibility to their high-interest loans is easy, and they offer an irresistible sales pitch to their audience.
Though these loans are meant to ease your financial burdens, a survey conducted by DebtHammer found that 90% of the people taking the loan regretted this decision, and 80% said it left them in financial ruin or serious payday loan debt. This is because of the high-interest rate and the time it took to clear the loan.
While payday loans are meant for emergencies, the same survey found that only 23% of the people who took the loan used it for emergencies. The rest used it for regular expenses such as utilities, groceries, and rent. Shockingly, instead of using the cash for emergencies, they take payday loans or other personal loans to meet their daily spending, which is not a wise financial decision.
If the above statistics best describe you, you’d also probably agree that;
- You have other loans that you’re servicing. The industry standard is four loans per individual.
- You have a bad credit score, and possibly some credit card debt. 555 is the industry average.
- The high-interest rate of 400% makes it hard to complete a payday loan on time.
All these factors make it hard for you to get over-payday loans. Worst, you’ve probably borrowed from one lender to pay off another one who was either harassing or threatening you. To stop this cycle of paday loans and continuous borrowing for good, what should you do differently?
How Do You Stop The Cycle Of Payday Loans For Good?
Are you in over your head with payday loans? Stopping their cycle can be daunting, especially in a financial storm. But that doesn’t mean you can’t stop the cycle of continuously taking out payday loans.
The following strategies will assist you in finding a tailored strategy or relief program for getting out of payday loans and improving your financial health.
1. Payday loan consolidation
A debt consolidating loan allows you to take all of your payday loans and turn them into one loan to be paid off with a lower interest rate and an extended payment plan than your previous loans. You can also consolidate your credit card debt with your other loans.
There are two types of payday loan consolidation, namely;
- Secured loans– You must offer collateral to back up the loan with them. This could be a car or a home.
- Unsecured loans– since a payday loan is unsecured, you don’t have to offer any equity, but the interest rates are slightly higher than secured loans.
The benefits of consolidating your payday loans include the following;
- You will pay up less with the consolidated loan. This is because of the reduced interest loan, and the service fee for a consolidated loan is cheaper, saving you a lot of money.
- You’ll be making flexible repayment amounts that won’t strain your financial muscle to forego some of your daily expenditure.
- Payday loan repayment is complicated to follow up on once they’re over your head. This is because of their roll-over nature which presents a mathematical problem in calculating the total amount to be paid. With consolidation, you’ll make fixed monthly payments catering to the loan over a set duration.
Such benefits make many people opt into payday loan consolidation to save money and maintain a drama-free repayment period. But this method of stopping the cycle of payday loans isn’t for everyone. To qualify for a debt consolidation program, it would be helpful if you have the following;
- Have good credit standings of above 580
- Have good financial stability- you are unlikely to be unemployed or have a paycheck cut.
- Present proof of income
- Provide equity- for large consolidated loans
If you don’t qualify for loan consolidation, consider debt relief.
2. Debt relief
Debt relief stops the cycle of payday loans in three different ways, namely;
- Filing for bankruptcy– filing for bankruptcy offers you the option of clearing out your unsecured debt or offering a more extended repayment plan. There are two types of bankruptcies: chapter 7 bankruptcy and chapter 13 bankruptcy. It would be best to familiarize yourself with their regulations before filing for one.
- Debt management– debt management plans stop the payday loan cycles by restructuring your payment plan and offering you flexible payment amounts.
- Debt settlement– debt settlement is done by professional third parties who negotiate down your payday loan to a reasonable price. You will make payments of the new agreed price to the third party, which will pay up the loan in a lump sum once you’ve completed payments. These companies play a crucial role in avoiding overdraft fees.
Along with the options above, you may also consider credit counseling agencies to ensure you’re best managing your money and finding the best way to stop payday loans for good if you’re already in over your head.
Better And Safer Options Than Taking Out A Payday Loan
You can use the alternatives below to stop the cycle of payday loans today and avoid their debt trap. It will save you time and resources when getting out of payday loans if you’re in over your head.
a. Borrow from friends and family
Instead of taking a payday loan, why don’t you ask for financial help from your friends and family?
Friends and family are our biggest fallback cushions when nothing is working, and loans borrowed from those close to you may be your best option. With a sound support system, you should be able to pay off payday loans and permanently move from that misery.
The beauty of borrowing from friends and family is that the money borrowed will be returned with a small or no interest fee. Banks’ transaction fees can also be avoided, thus saving you lots of money.
b. Apply for an advance
You can talk to your employer and ask for an advance payment to avoid working from payday to payday loans. Once approved, pay your payday loan, and focus on your survivability.
In some companies, you may have to fill out an application in advance stating the reason for the application. So, maintain a level head and calm approach.
c. Work overtime
Perhaps this is the safest known way of making some extra cash. The cash you earn from working overtime is yours with zero interest rate and no return back policy. Working overtime gives you a tried and tested way of getting out of payday loans quicker.
d. Apply for a new loan
To be clear, it isn’t a new payday loan. Instead, it can be from financial institutions offering low-interest rates loans. There are many options for securing finance, depending on your preferences. They include;
- Home equity line of credit (HELOCs)- also known as home refinancing, lets you take a mortgage by using your house as equity. They can finance you with up to 85% of the perceived home value at reasonable interest, favorable monthly payments, and transactional fees. You can use the cash to pay up high-interest payday loans, thus, stopping the cycle of payday loans.
- Credit card cash advance– if you have a good credit standing, you are most likely to qualify for a credit card cash advance. What’s attractive with this type of lending is that the higher your credit score, the lower the interest rate you’ll be charged.
- Payday alternative loans– credit unions offer this service as an alternative to stopping the cycle of payday loans. The beauty of this service is that the unions cap the interest rate at a maximum of 28%. Additionally, you can take up one loan at a time, minimizing the chances of your loan spiraling up.
Avoid Scams When Stopping Payday Loan Cycles
Unfortunately, many scammers are seeking to trick you in the name of helping you stop payday loans. If you’re in over your head in payday loans, be sure to look out for these early signs that will help to identify scammers;
- They’ll tell you to pay a facilitation fee upfront, yet they haven’t offered any service. Don’t fall for it. Only pay them after they have sorted out your payday loan mess
- They lack a company website or reviews, or if it’s there, it isn’t secure
- They don’t have a valid license from a recognized institution like CFPB
- They are reluctant to spell out their terms and conditions for services offered
- They rush everything and may make you commit to legally binding documents without reading them first. When asked, they claim it’s for your benefit.
Always be on the lookout for who you share your personal and financial information because some people are wolves in sheep’s clothing.
Bottom Line If You Think You’re In Over Your Head With Payday Loans
Though payday loans are high-risk, lenders shouldn’t offer them at such high-interest rates. I hope this article has demonstrated the predatory nature of these loans and alternative ways of stopping their cycle. Have a debt-free life, and remember to borrow when absolutely necessary.