I Am Caught In Payday Loan Debt: What Do I Do?
Payday loans are attractive due to their ease of application and convenience for people with bad credit scores. However, unknown to most borrowers, they are a trap to financial slavery. A single payday loan can lead to months of debts, rollover fees, and accumulating interests.
If you are caught in a payday loan debt, you may feel alone. You are not alone, a research done by Consumer Financial Protection Bureau shows four out of five payday loans are rolled over annually.
But how do you break free from the financial trap created by a payday loan?
How to become debt-free from payday loans
Here are ways in which you can get out of payday loan debts:
Extended payment plan
Payday loan lenders are in business, and when you default, they count losses. Most of them aren’t willing to mess their income and will openly accept your proposals for better payment plans. An extended payment plan (EPP) lets you repay the loan over an extended period.
Lenders that are members of the Consumer Financial Services Association of America (CFSA) are obligated by the association to give borrowers an EPP if they request it. Check to see if your lender is a member of CFSA and ask them for an EPP.
To qualify for an EPP, you need to do the following:
- Apply for the EPP no later than one business day before the loan due date
- Renew your loan agreement with the lender
Payday loan consolidation is a viable way of getting out of payday loan debt. It involves taking a new loan that will repay all the debts you owe. Instead of having multiple loans to think about every month, you combine the debts into one and leave one loan with better payment plans.
You can consolidate your payday loans in any of the following ways:
- Taking a home equity loan/refinancing a mortgage
- Taking a loan from a credit card company
- Obtaining a bank or credit union personal loan
You can consolidate your payday loans yourself or seek the help of a debt consolidation company. The latter is better because you get additional financial advice, and the experts may negotiate better rates for you.
Take a payday loan alternative(PAL)
Most payday loan alternatives from credit unions can offer up to $1000 and at lower interest rates. These loans also have flexible payment loans than payday loans; hence you may get a reprieve as you try to get out of debt.
However, to qualify for a payday loan alternative, you need to be a credit union member for at least one month before loan application. PALs attract an interest rate not exceeding 28% APR, and you pay them within six to twelve months. You will also need to pay an application fee of about $20.
Credit counselling and debt management
If you find yourself in a payday loan debt, most probably you got there because of inadequate knowledge about their nature and how to manage them. Sometimes, all you need to get out of a bad credit trap is guidance from a financial expert. Credit counsellingwill help you understand what you can do to pay off your debts.
The credit counsellor will also help you formulate a feasible payment plan. Moreover, the credit expert may enrol you in a debt management plan.
However, since most for-profit credit counsellors charge for their services, look around for non-profit counsellors who offer the services for free. You can get such in military bases, state government offices, education institutions, credit unions, etc.
If you are drowning in payday loan debt, all is not lost. You can redeem yourself by requesting your lender to offer you an extended payment plan, debt consolidation, taking a payday alternative loan, and seeking credit counsel from experts. The experts will help you formulate a feasible payment plan or enrol you in a debt management p