How to Stop Drowning in Payday Loan Debt
From the outside looking in- especially from the viewpoint of someone who has never felt financial desperation- it is easy to wonder how someone might fall into payday loan debt. The thing is that no one ever thinks that they will fall into the trap. All it takes is one desperate moment. Next thing you know, all of the dominoes of your financial life are falling over.
If you are like so many others and are already in the trap, you can get out of it. With a plan and some persistence, you can dig yourself out of the hole you are in, and we are here to help. Throughout this article, we will give you the information you need to get out of payday loan debt and stay out of it.
Assess Your Debt
You cannot make a reasonable plan until you understand what exactly you are facing. First things first: Gather any information about your current payday loan debts. You need to make a list that includes the debt name, the total due on the debt, the amount of interest you pay on that debt, and when it is due again.
Make a Plan
After you have got the information about your payday loan debts in one place, it is time to make a plan. Your plan is a vital component to paying down debt- no matter what kind of debt it is. Going at it haphazardly will not get you the results you want. You need to have a step by step plan that will guide you to the finish line.
Make Smart Financial Decisions with the Debtry Shop.
Consider Your Options
You have a few methods you can use to get out of payday loan debt. One of them might be enough for you, but it is okay if you have to combine some.
1. Pay Off One at a Time
One option is to pay off one payday loan at a time. This is not a terrible choice if you can comfortably pay them off in a month or two. If this is the route you want to go, you need to start by prioritizing which debt to pay first.
This requires taking a good look at the different payday loan debts that you have and understanding how each affects you. The amount of interest you pay should be the biggest determining factor. In many states, the interest rate for each of your payday loans is the same, but occasionally they differ. Sometimes the interest rate due at each payment is the same, but the annual percentage rate (APR) is different. The APR is the interest you will pay over a year. Let me break it down a bit for you.
Where I live, the interest on a $150 payday loan comes to $26.50 and the interest on a $500 payday loan comes to $87.50. Each time those payments are made, the interest rate is 18 percent. According to this number, you might view the interest as equal, but it goes beyond that. That $150 payday loan is due every week or two weeks- depending on when you get paid. For me, this was every two weeks. Therefore, I was paying 18 percent twice a month. This made the APR come to 469 percent.
The $500 payday loan was due monthly, so though I was paying 18 percent, I was only making that payment every 30 to 31 days. The APR on this loan came out to 212 percent. Both APRs are crazy expensive, but I would much rather pay the 212 percent than the more than double 469 percent.
Pay the Highest One First
If you are going to choose to pay them off one at a time, you need to determine which has the highest APR and pay that one off first. This way, if you stumble along the way and cannot pay them off as quickly as you thought, you have at least paid the one that costs you the most overall. If you know for a fact that it will take longer than a couple of months to pay them off, you will need to consider doing one of the following:
2. Dig into Your Budget
Take a good hard look at where your money is going. Is there something you can do without for a month or two, like a magazine subscription or your Netflix membership? Can you switch something from brand name to generic? Can you cook more and eat out less for a time? Challenge yourself to cut down 15 or 20 percent of your spending and put that money toward your payday loan debt.
3. Increase Your Income
If you can make more money, you can pay them off quicker- that is obvious. This does not always mean getting a second permanent job, though. In fact, it might take too long to find another job, leaving you paying on your payday loans for much longer. Instead, you want to make some quick income if you possibly can.
Here are some ideas to consider:
- Try a Serving Job
Going to work at a bar or restaurant for a few weekends has the potential to get you out of debt quickly- especially if it is side income instead of the main income to pay your bills. Many of these places will get you on the floor making your own tips in a few days or less. I have worked some that put me on the floor on my first night. It really just depends on their policy and training process.
- Garage Sale
Many people find that they have more than enough stuff lying around their homes that is valuable enough to pay off debt. Try having a garage sale for a weekend or two.
- Do a Side Gig
Find something that you can do for others and get paid for it. Some of the most common things, of course, are house cleaning, babysitting, or cutting grass, but those are not all. No matter your skill, you can put it to work. For instance, if you have a sewing machine, find some clients who need alterations. If you love to bake, offer to bake a cake for your neighbor’s kid’s birthday party. Be a mobile car washing service. Whatever you can do, put it to work.
4. Ask for a Payment Plan
Some states require that payday lenders work with you if you ask for an extended payment plan. These plans spread out your payment instead of having you drowning in debt thanks to never-ending interest. Look into your state’s laws and ask for an extension if your state requires lenders to offer them. For other information regarding payday loans in your own state, check out this website.
5. Get a Debt Consolidation Loan
If you cannot get a payment extension plan through the lender, you can make one for yourself by getting a debt consolidation loan. Understand what your loan will cost along with all additional fees so you can be realistic about paying it back. If you are considering a debt consolidation loan, one of the best routes you can take is to consider one of the lenders suggested here:
6. Consider Bankruptcy- As the Last Resort
If all else fails, you can file bankruptcy. This can help you get out from under that debt, but there is something you need to know first: Only under certain circumstances will bankruptcy completely wipe out your loans. Instead, the bankruptcy court will add that payday loan into your payment plan. You will still be paying the payday loan and bankruptcy can hurt your credit for years to come.
The only real benefit I can see of the bankruptcy is that it will put a stop to the growing interest. However, by using any of the methods above, you can do that yourself without messing up your credit. Before you file bankruptcy, be sure that you understand the repercussions.
How to Stay Out of Payday Loan Debt
Getting out of payday loan debt does no good if you are just going to get back in it. You have to be preemptive before you get yourself into more debt. Try the following:
Emergency Fund
Most people do not get a payday loan for fun or to go on a shopping spree. It is normally due to an emergency. Maybe a flat tire or a blown engine surprise you. Maybe you were sick for a couple of weeks, missed work, and now you are struggling to pay your rent.
You can prevent this from happening again by building an emergency fund for those rainy days. You should aim for at least three to six months of living expenses, but the more you can put away, the better. Every time you get paid, put something away- even if it is a dollar at a time.
You could try the 52 Week Savings Challenge, too. It starts out really slow- you put away $1 on Week 1, $2 on Week 2, $3 on Week 3, and so on. By the end of the year, you have almost $1400. I like this challenge because you slowly build up to a savings habit instead of jumping into an overzealous one that you may not be able to keep.
You could save a little more by doubling each week’s amount. That will put you at nearly $3000 at the end of the first year. You can print out a savings calendar to follow or check out the 52 Weeks app for your phone.
Budget, Budget, Budget
Make a budget for all of your bills, all of your savings goals, and any other expenses- if you do not already have one. If you do have one, you might need to adjust it. When you live by a budget that not only pays all of your bills but also helps you save, you have a much lower chance of being surprised and needing a payday loan.
Take some time to sit down and either create a budget or review the one you already have. Find any strengths and weaknesses you might have in your finances and do your best to fix them before they lead to any more issues. If you struggle with creating a budget, you might consider talking to a financial advisor or having a trusted friend help you out.
Alternatives
The ease with which a person can get a payday loan is often the driving factor behind getting one. However, there are many more favorable options. Consider the following first:
Talk to Your Service Providers
Most bills that you owe can be put on some form of payment arrangement. If I ever need a little extra time on my internet, power, water, or other bills, I call the provider. Most often, they will work with me by extending the due date. Sometimes they can only do so for a few days. Other times, I have been given as much as an extra month.
Even landlords are willing to work with you- as long as it is not an all the time thing. If you normally pay your rent on time, most landlords don’t mind waiting a little longer. They may charge a late fee, but those fees are usually much lower than the interest you would pay on a payday loan.
Family and Friends
Trust me when I say that I am aware that many people do not have family and friends that they can turn to in a financial bind, but there are those that do. If you do have a financial support network, ask them before resorting to a payday loan. If no one is willing to just loan you the money, ask if you can cut their grass or clean their house in exchange for the money you need.
Personal Loans
If you can get a low-interest personal loan with a decent repayment term, you will be much better off than you would with a payday loan. Try getting a personal loan first. If your credit is not so great, you might need to put up some form of collateral, but that is still better than paying 200 and 400 percent interest over the course of a year. And anyway, secured loans often require a lower interest rate than unsecured personal loans.
Quick Cash
Earlier I talked about ways to make quick cash to pay off payday loans, but you can use those tips at any time. For instance, if you have taken a look at your budget and realized that your income will be a little short this month, you can hold that garage sale over the weekend- before you are late on your bills. Get creative. If it can net you some quick cash, give it a go.
Conclusion
If you are drowning in a sea of payday loan debt or know someone who is, take heart. You do not have to stay there. Remember, though, it will take some time. You probably did not get into this debt in one day, so do not expect to get out of it that quickly. Make your plan and take it one step at a time.