by Ben Sweiry ·
Modified on 19 June, 2023
- To get out of a payday loan trap you need to firstly figure out how to pay-off your payday loan debt.
- Payday Loans can be a great way to cover emergency bills or tide you over to your next payday.
- However, you need to have a clear plan of how you are going to pay-off your debt before you take-out a loan of any kind.
Whilst payday loans can be a good way to provide short-term cash if you’re struggling to make it to your next payday, or if you’ve been hit with an unexpected or emergency bill, it can be very easy to fall into a cycle of debt, or a payday loan trap.
On average, one in five American borrowers default on their payday loans and 80% of borrowers who were tracked over 10 months rolled over or re-borrowed payday loans within 30 days.
In order to avoid getting into a payday loan trap, or to get out of a cycle of debt that you’ve found yourself in, it is firstly important not to panic and not to make any rash decisions.
Follow these simple steps to get out of a payday loan debt trap.
Extended Payment Plan
Many states require payday lenders to offer extended payment plans, or EPPs. These are procedures that let you repay your loan over a longer period of time than originally agreed with your lender.
Whilst many lenders are sympathetic and will be flexible, it is important that you notify your lender if you know that you are going to struggle to make your repayments.
Debt Consolidation
Debt consolidation loans can be an ideal option if you’re struggling to repay your payday loan.
Debt consolidation loans work by borrowing money at a relatively low interest rate and use it to repay your payday loan in full.
You will still need to repay a personal debt consolidation loan, but this strategy will help you to schedule your monthly payments to fit in with your income or budget. These loans, like any, do require a credit check, but are often available even to borrowers with poor credit.
Payday Alternative Loans
Payday alternative loans (PALs) are short-term loans offered by credit unions to help people who need a quick fix to debt issues.
These short-term loans are available in amounts up to $1,000 and they do not require a credit check. They are designed to be used as an alternative to payday loans, but you can use one to pay off a payday loan as well if need be.
Debt Management Plans
If the other options listed above are not working for you, then another option is to go to a debt counselor who can help to set you up with a debt management plan (DMP).
With DMPs, you will work with a certified credit counselor to come up with a budget and debt repayment schedule, and the counselor may negotiate with payday lenders and other creditors to accept less than the total amount(s) you owe.
However, if you sign up to a DMP, you will not only be required to close off all credit card accounts, but it will also show-up on your credit report and this can impact on your ability to take out any kind of loan for a few years into the future.