Many people who go through mid-month financial crisis prefer to take out payday loans to meet their needs immediately. Though payday loan helps to meet the urgent money need, in reality, they carry outrageously high-interest rates.
These loans are easy to obtain but can lead the borrower into a perilous cycle of debt. You have to pay off the entire loan amount along with the interest rate on your next payday.
Not repaying the loan can make you fall you into the trap of high-interest debt.
But, when you have an overwhelming amount of payday loan debt, you have to follow some strategies to come out of payday loan debt trap.
1. Talk to your lender for a payment agreement
Your payday lender may permit you to pay the interest on your loan and stretch the loan for a further two weeks. They might also freeze the account and determine a payment plan with you. Talk to your lender for a payment plan. You can also request an extended payment plan (EPP).
2. Stop taking out further payday loans
It’s obvious that you’ll be tempted to take out more payday loans (pdls) to solve your debt problems. But before doing so, you must be aware of the fact that it will actually lead you to a never-ending cycle of loans. Break this cycle by avoiding any further payday loans. Make sure that you avoid taking out a new loan to pay off your existing loans. If you take out a new loan, then you can further complicate your financial situation.
3. Consider debt consolidation
When you consolidate your payday loans, paying them back can become easier. By consolidating your payday loans, you can merge the loan payments into one payment every month. You can combine your multiple payday loans into a single monthly payment through a professional debt consolidation company. Once you enroll in the debt consolidation program, they will contact your lenders to negotiate for a lower interest rate of the pdls. You just need to make a monthly payment to the debt consolidation company for a certain time. The money will be disbursed by the company to your lenders.
However, you are not always required to enroll with a particular company to consolidate your payday loan debts. You can take out a consolidation loan to pay off your existing payday loan debts. Make sure you make regular monthly payments on your new loan.
4. Target the highest interest rate loan first
Once you’ve calculated the debt you owe to your payday lenders, target the one with the highest interest rate. Pay off that particular debt first by making larger payments. After that start paying off other loans accordingly.
5. Know your state’s payday lending law
Try to know the facts on payday lending law enforced by your state governing organizations. You can take help of the state law to protect yourself from the loan swindlers. Once you have sufficient knowledge of the law imposed by your state, you can deal with your lender properly. It will be easier to negotiate with the creditors to lower the outstanding balance.
6. Contact your state’s payday lending agency
If the payday lender refuses the offer of an extended payment plan, then contact the payday lending agency in your state. They can help you to get an extended payment plan. However, the payday loan company should be a licensed lender; otherwise, you have to pay only the principal amount if the payday loan or the pdl lender is not not legal in your state
7. Formulate a strict budget
While you make payments to your lenders, you’ll also be required to save some cash. The main reason for falling into a payday loan debt is some unforeseen incidents. Most of the people don’t have enough savings to cover emergency expenses. Thus, it would be a wise decision to save some money while you pay off your payday loans. This way, when you face a financial crisis in the future, you’ll no longer need a payday lender to borrow cash.
Thus, you should create a personal budget so that you can start managing your finances efficiently. Budgeting helps to track your expenses and liabilities as well.
8. Consider debt settlement
If you are unable to manage your multiple loans, you can enroll in a debt settlement program to pay off your debts. The debt consultant will negotiate with the creditors to lower the outstanding balance. It will help you to pay off your payday loan debts with ease.
9. Boost your income
Earning some extra cash will not only bring about a lot of difference in your budget but also help you to make larger debt payments. Thus, you should try to earn some extra money.
To boost your income, you can start a home based business like babysitting. You can also find online jobs that are available.
However, you should also cut down extra expenses and put the extra money towards paying off the loan.
10. Seek debt counseling session
You may also consult a credit counselor for advice. In case you see that you just can’t stop borrowing loans, look for the advice. The credit counselor will advise you the best debt repayment method. You will also get free budgeting tips from a debt counseling session.
11. Convert your home equity into cash
If you have a home and also have a moderate amount of equity in it, convert the equity into cash to pay off the payday loan debts. You may convert your home equity into cash by obtaining a home equity loan. For this type of loan, you need to keep your home as collateral. You may get a low-rate loan by placing your home as collateral as well. Once you pay off your entire payday loan debts, you’ll be left with a single debt account to manage, where the rate of interest is relatively low.
Apart from that, home equity loans don’t include any unfair practices like high penalty fees or rollovers. You get an opportunity to make your payments in small monthly installments for a specific period.
Lastly, you can take out a payday loan to manage your short-term expenses in the middle of the month. But the interest on the payday loan is exorbitant; so it is advisable to pay it off by the next payday. If you know you can’t repay the loan by the next payday, then avoid it. You should learn better money management lessons so that you can save more and avoid any financial emergency. Try to build up an emergency fund to meet these surprise expenses. It helps to avoid the higher interest payday loan debt trap.