Getting Out of a Payday Loan – how to get out of paying back a payday loan?

Getting Out of a Payday Loan
Getting Out of a Payday Loan

Payday loans are emergency funds that you can borrow from lenders and you are expected to pay back by your next payday. Most often, people resort to taking out payday loans when they run into emergencies and they do not have enough cash to sort out the situation. Most often, people go in for payday loans to sort out medical emergencies, pay for utilities, or an unexpected bill.

Why People Get Buried in Payday Loan Debts

Payday loans are expected to be paid back within the next 30 days. However, many people who take out payday loans stay in debt for at least 5 months a year. This happens often due to the following reasons. One of the major reasons why people stay in payday loan debts is that it is easy to re-apply for payday loans. The process of applying for a payday loan is simple and you can access the funds by the next business day. It is an unsecured loan, hence, you do not need collateral. These loan applications are online and the lender does not demand several requirements.

You will only need to provide your personal data and bank details. When the lender approves your request, they will deposit the cash into your account. It is even easier when you are applying for the second time. The lender will approve and pay the cash into your account almost immediately. Since lenders offer new loans immediately after you pay your previous loan, most borrowers apply for new loans right after paying the previous loan. Lenders also increase the lending limit after every payment. This means that the borrower’s debt increases. This process makes it easy for the borrower to rely on payday loans month after month. Eventually, the accumulated debt is almost the same as their salaries and they are unable to repay.

Another reason why people get buried in payday loan debt is the huge fees that come with payday loans. Since the loan is an unsecured loan and the funding is fast, the fees are usually high. This makes the loan very expensive and it makes it difficult for borrowers to pay it off completely. Another reason is the purpose of the loan. 70% of borrowers use the loan for purposes that do not yield any returns and they are unable to raise funds to pay back. Due to this, they are forced to take out another payday loan when they had repaid the previous one.

When you do not repay your payday loan on time, you will not be criminally prosecuted but lenders can put a lot of pressure on you. Lenders who have access to your account can garnish your salary until they have collected the full amount. You should not wait until lenders begin to call you constantly. You should also not wait until the lender starts threatening you. If you are caught in a debt cycle, this is what you can do to break that cycle.

  1. Opt for a payday loan consolidation

    If you are struggling to pay several high interest loans at the end of the month, you should consider consolidating your loan. Consolidating your loan reduces the amount you will pay on interest and you will be making one single payment at the end of the month. If you are able to consolidate your loan successfully, you can make smaller payments at the end of the month. The loan consolidation may offer you a lump sum to pay off all your loans or they will pay them off for you. When this is completed, your next payment will be made to the consolidating company. You will make payments to the consolidating company until you pay off the debt. Since the consolidating company assumes the debt, you will sign a new contract with them. Although loan consolidation is a common method of dealing with debts, it is not always the best way.
    You will need to check the following before considering loan consolidation. Do your calculations to make sure that you will be able to save on interest before you apply for a loan consolidation. When doing your calculations, consider the fees that come with the processing of the new loan. Sometimes, the interest rate may be low but the fees can swallow up all that you can save on the interest rate. If you realize that the fees will take up all that you can save on interest, there is no need to consolidate your loan.

  2. Stop taking out more loans

    This is a very important step when you decide to clear your debts. You should cease taking more loans in order to make progress in payments. If you make plans on clearing your payday loan debt and you keep on taking more loans you will not be able to solve the problem.

  3. Adjust your lifestyle

    When you decide to clear your payday loan debt, you should definitely alter your lifestyle. You should not spend on luxurious clothes and shoes. You should also reduce or even stop your frequent visits to that expensive restaurant. It is also not advisable to spend on expensive electronics around that period. You should try as much as possible to reduce your expenditure. You should also avoid impulse buying at all cost. Remember to draw a budget and stick to it. The budget should include your necessities and not luxury items.

  4. Increase your income

    Increasing your income is one helpful way that you can clear your debt. You will get access to more funds to increase payments. But how do you increase your income? Fortunately, there are many things you can consider. You should be ready to spare some time to increase income. One thing to consider is taking up other jobs. If you are not doing that already, then it is time to take up another job. If you work on a 9 to 5 job, you should think about getting a part-time job. How about bartending or pizza deliveries after work? You can also put your skills to work by freelancing. There are several freelancing opportunities online. You can be a personal assistant, you can also decide to code, copywrite, or design.You can also make about $20 or more for pet walking or pet sitting for 30 minutes. Babysitting is also another way of increasing your income. You can also use your car to make extra cash. Uber has made that possible and you can grab that opportunity. You will choose your own work hours and that makes it very easy. You can also make extra cash by selling old things you no longer use. You can sell your items on eBay and Craigslist. Thanks to Airbnb, you can easily make extra cash if you have more rooms in your house.You can also work overtime in your current job. If you have an opportunity to work overtime, grab it even though it will reduce the amount of free time you enjoy. This will help you to pay for your debt. You can also ask for a pay rise. You can talk to your boss about it.

  5. Apply to extend your repayment period

    It will be easier for you to repay your debt if you are allowed to pay it in bits. There are opportunities for you to repay your payday loan debt over a longer period. Unfortunately, this is not available in all states but most states allow this. If your lender is a member of the Community Financial Services Association of America (CFSA), you can get this service. Members of this association allow payday loan customers to enter into an Extended Payment Plan (EPP). Members who enter this plan can spread the debt over a 5- month period.If you want to successfully apply for an EPP, you should apply on time. Make sure that you apply at least one business day before the due date. It will be better to apply on time. Once you complete the application, you will need to send it to your lender. If your lender is operating at a physical location, you will need to visit the place a sign a new contract. Since most payday lenders operate online, you will need to contact your lender on how to sign a new document. When your EPP application is successful, you should try as much as possible to restructure your payments well so that you can successfully pay your debt before the period ends.

  6. Opt for debt settlement

    Another option is to opt for debt settlement. There are debt settlement companies also called debt relief companies. These companies will offer to negotiate with the lender on your behalf. They will request that the lenders reduce the total debts you owe, or negotiate a better payment plan. The settlement company will charge a fee that is usually a percentage of the amount you will save after the debt resettlement. When the company is negotiating on your behalf, they will ask you to start saving in a separate account. Although that account will be under your control, it will be administered by an independent third party.That money will be used to pay the lump sum when the lender agrees to the debt settlement. Although debt settlement has its advantages, it also has its disadvantages. It will reduce the total amount of debt you will pay. It can also help you to avoid bankruptcy. However, it can be very risky since there is no guarantee that the lender will agree to the debt settlement company’s request. If the lender does not agree, it may accumulate more debts for you.

  7. Credit Counseling

    Another option to consider is credit counseling. Credit counseling is free and it is offered by non- profit organizations. They provide educational materials that will help you to review your budget, your credit report, and help you with financial management. The overall purpose of credit counseling is to improve your finances. There are several credit counseling organizations and most of them do not only offer credit counseling, but they also offer debt counseling. The first step to getting credit counseling is choosing a credit counseling organization. The organization will assign a credit counselor to you. A typical credit session lasts between 20 minutes to 1 hour. The counselor will offer free budget sessions, credit report reviews, education on how to improve your finances, and some may also suggest that you undergo a Debt Management Plan (DMP). This plan will help you to get out of debt faster.With debt management plans, the agency works at reducing your interest rate and scheduling a payment plan. Before you begin credit counseling, it is recommended that you get access to your credit information. This includes information on your expenses, monthly income, assets, and debts. This will help the counselor to get a better understanding of your credit situation. It is only when they understand your situation that they can offer you solutions that are aligned with your problem. They will offer you personalized solutions instead of the general one that is offered to people who fall in one category. Many people wonder if they should go in for credit counseling. Credit counseling is not only suitable for people who are struggling with their finances. It is good for everyone who needs credit information. You should probably consider getting a credit counselor when you get your first credit card. the counselor will help you to create a good budget so that you do not max out your card. A credit counselor will help keep you on track at all times. Even though these counselors offer good information for credit management, it is important that you pay heed to their advice. It is only when you put them to use that they work for you.As mentioned earlier, there are several credit counseling agencies. How do you know the right one? When choosing a credit counseling agency, check and make sure the agency is accredited by the National Foundation for Credit Counseling. You should also check the rating at the Better Business Bureau, if it has a good rating then you can go ahead to work with them. You should also make sure you are comfortable with the agency. Although credit counseling is free, the agency will charge you when you need to go in for a Debt Management Plan.

  8. File for Bankruptcy

    There are several types of bankruptcy. The basic ones for individuals are chapter 7 and 13. The chapter 7 bankruptcy procedure allows that you liquidate most of your assets to pay off your debtors. This type works for low income debtors who have little or no assets. If you have lots of assets, you should opt for chapter 13 bankruptcy. With the chapter 7 type of bankruptcy, you will undergo a bankruptcy means test. You will only qualify for this type of bankruptcy if you pass the test. This type of bankruptcy is faster than chapter 13; the entire process is completed in 3 to 4 months.Under chapter 7 bankruptcy, not all assets can be liquidated. The assets that can be liquidated include expensive musical instruments (this will be exempted only if you are a professional musician). Others include a second car, a second house, stocks, bonds, cash, collections of stamps, coins, and family heirlooms. Properties that are exempted include reasonable clothing, truck up to a certain value, household appliances, pensions, jewelry, tools you use for your work, public benefits such as social welfare, unemployment benefit, social security, damages received against personal injury, reasonable household furniture, and a portion of your unpaid earned wages.With chapter 7, you will begin the process by filing for a petition with the bankruptcy court. You will also be required to file the following to the court: schedule of assets and liabilities, income and expenditure, statement of accounts, and a list of all executory contracts and unexpired leases. A trustee will be assigned to your case. When a trustee is assigned, you will need to give all documents to the trustee. You will also include a copy of your tax returns.If you have primary consumer debts, you expected to provide additional documents. You will be required to undergo credit counseling and provide a certificate to prove it. You will also need to provide the debt repayment plan that was developed when you went in for the credit counseling.20 to 40 days after the petition is filed, the trustee will hold a meeting between you and the creditors. During the meeting, you can ask questions and your creditors can also ask you questions. You will put under an oath by the creditors.When you file for a petition, it stops a collection action against you. Lenders can also not file lawsuits against you. They can also not garnish your wages for debts. This is commonly called automatic stay.

    The chapter 13 bankruptcy, on the other hand, allows you to sort out your finances so that you can reimburse your debts over a period. This is great for people who earn monthly income and can have a regular income to make payments every month. This process takes three to five years.
    The debtor will file a petition along with the schedule of assets and liabilities, schedule of current income and expenditure, a schedule of executory contracts and unexpired leases, and financial statements. In chapter 11 bankruptcy cases, a trustee is assigned in limited cases. A written disclosure statement, as well as, a debtors plan for reorganization is also filed at the court.

    You should note that there are fees you will pay when you file for bankruptcy. You will pay lawyer fees. This can accumulate quickly since lawyers charge hourly. If your case is complex and the lawyer spends a lot of time on it, you will pay high fees. Apart from the fees, you will pay to the lawyer, you will also be required to pay for case filing fees, administrative fee, and a trustee surcharge. If you cannot pay these fees at once, you can seek the court’s permission so that you will pay in installments. The installment period is limited to four months. If your income is less than 150% of the poverty level, the court may waive your fees.

    Bankruptcy cannot discharge all your debts. Debts such as student loan, alimony, taxes, child support, and real estate liens are exempted from bankruptcy debts.

    When you are finally cleared of your payday loan debts, it is important to manage your finances well. Make sure you do not fall back into the vicious circle. Try to live within your budget, set up a contingency account for emergencies, and look for alternative lenders when you need a short term loan. A contingency account will help you to save enough cash for medical emergencies and other things. Once you live within your budget, you will not need to spend more than you earn. The most affordable credit is the one you get from your family and friends. If you need extra cash, check from your family and friends before going to any credit agency. Most families and friends do not put interest on the cash they offer. You will also not pay fees. Although getting loans from family and friends is less expensive, it can get awkward if you do not keep your end of the deal. When you go in for the loan, be honest with them. Tell them the exact period you will be able to repay the loan. Do not lie with the intention of buying more time.

    You should also pay back the full amount on the agreed period. If you are unable to pay, talk to the creditor and explain your situation to them. Make sure that your loan does not damage the relationship between you and that family or friend. If you have good credit and cannot go to your family and friends, you can also opt for personal loans. People with good credit scores access these loans at lower interest rates.