How to Pay Off Payday Loans and Get Out of Debt

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Payday loans seem like a necessary evil for low-income borrowers.

The average payday borrower earns $30,000 per year, and 58 percent of them struggle to make ends meet each month. But payday loans are unaffordable, which means that a whopping 80 percent of payday loans taken out are those to renew or reborrow an existing loan.

Seventy-five percent of all payday loans go to borrowers who use them at least 11 times per year.

Getting out of the payday loan trap is difficult, but it is possible. Keep reading to learn how to pay off payday loans - once and for all.

1. Prioritize Your Highest Interest Debts

Your first step is to identify the debts that cost you the most, i.e., the loans with the highest APRs and fees.

These are the products costing you the most, and continuing to extend them is preventing you from not only paying them off but from getting rid of other debts.

Start by choosing the highest priority debt and find a way to eliminate just that one.

2. Ask for Help from Your Lender

Payday lenders don't mind rolling over these types of loan because it means they charge higher fees. But there are other options.

If your lender is a member of the Community Financial Services Association of America (CFSAA), they may offer you an extended payment plan. These plans provide installment payments (rather than your current lump sum). They also don't come with higher interest rates or fees - as long as you don't default.

To get an extended payment plan, you need to contact the lender the day before your payment is due. You then pay it off in four equal payments over four pay periods.

Some states require payday lenders to offer you this whether they are members of CFSAA or not. If your payday lender rejects your request, contact your state's attorney general to learn the laws in your state.

The smaller payments benefit you in more ways than one.

First, they give you a structured payment plan without added interest. Second, they don't require you to hand over your entire paycheck in two-weeks' time. Losing a whole paycheck and then waiting another two weeks for a new one is what puts you in a position to borrow again.

Not all payday lenders will accept this option. If they don't and your state doesn't require them to, move on to step three.

3. Look for Alternatives

If you turned to payday loans, you might believe you don't have other credit alternatives. But that may not be true, and even the high-interest credit cards can give you more flexibility and more considerable savings compared to payday loans.

For those with fair credit, try using a:

  • Credit card cash advance
  • Personal loan
  • Credit union loan

Today, there are more lending options for even those with poor credit. If you have a minimum score of 580, you can still find something. For example, Avast lends to poor credit borrowers.

You might also consider talking to a family member about co-signing a personal loan. If someone you know has good credit, but can't lend you money, they may be willing to help you get back on your feet using this tactic.

Credit unions may also be more willing to help than traditional lenders thanks to a program run by the National Credit Union Administration (NCUA) called payday alternative loans (PALs). These loans exist specifically to pay off your payday loan. The loans range from $200 to $1,000, but you need to be a member of the credit union for a month before you can access them.

If you are stuck and seem to have no other options, look for local credit counseling programs. They can provide you with resources that include debt assistance and counseling. Credit unions often offer this service.

Skip Debt Consolidation

When looking for alternatives, be sure to work with reputable members of your community.

If you are a payday loan borrower, you may be targeted by scammers. They offer products that manage to make your situation worse.

If you see a program that promises to wipe out your debt, lower your monthly payments to next-to-nothing, or participate in a program that costs hundreds of dollars, avoid it altogether.

4. Try Even More Alternatives

Most people who take out payday loans do so because they feel stuck. If you had access to personal loans, credit cards, or a family member with money to lend, you would have gone there first.

So if the programs above are unavailable to you, don't give up yet.

If you are a member of a church, synagogue, mosque, or another religious community, consider talking to your pastor. Your community may provide charitable assistance to help you get out from under your loan.

Another option is to talk to your employer. They may offer you a paycheck in advance or give you the option of picking up extra hours.

5. Stay Out of Debt

There are so many options that you can use to get out from under payday loans that you're bound to find one that works for you. You don't have to struggle alone.

Now that you have paid off the loan, you can focus on avoiding them in the future.

The most uncomplicated advice is to skip payday loans altogether.

If you are ever in a state like the one that led you to payday lending in the first place, go back to those resources. If you are short on rent, ask your landlord for an extension. If you can't make a payment to a bank or another lender, ask for an extension.

Being unable to pay a bill isn't rare or unique; it happens to most Americans at some point. 

When in doubt, talk to your local debt counseling center to learn about programs that can assist you in covering the costs of daily life without falling victim to payday lending.

You Can Pay Off Your Payday Loans

Millions of Americans find themselves trapped in payday loan debt every year. One payday loan almost always leads to another.

You can pay off payday loans, but it might need to be a team effort.

The good news is that there are more debt relief options than you realize. Often, all you need to do is ask.

Do you want to chat more about finance - or anything else? Visit our discussion page to get involved.

 

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