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Step 1
Avoid taking out another payday loan. This is the first and most critical step in getting out of the cycle of payday loan debt. Try taking on some overtime at work, picking up a part-time job, doing odd jobs in the neighborhood or selling some personal possessions to get you through to the next paycheck and to get you on the road to paying off your debt. If you must borrow additional money, try a cash advance on a credit card, which has a more favorable rate. In the meantime, establish a budget or spending plan to reign in spontaneous purchases and account for all income and expenses.
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Step 2
Tell the payday loan company about your situation. Inform them that you will need to have a special arrangement to pay off the debt in installments. Some states--Alabama, Florida, Alaska, Illinois, Nevada and Michigan--require payday loan companies to allow for extended payment plans. If the lender refuses to negotiate the terms of the loan, contact a state regulator for assistance.
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Step 3
Check the terms of your payday loan contract. The phrase you are looking for is ''voluntary wage assignment clause." If you agreed to this clause, you permit the lender to garnish your wages directly. To stop the debits from your paycheck, write a letter revoking the agreement. This way, the lender will need court approval to garnish your wages. The Federal Trade Commission's Credit Practices Rule prohibits payday loan contracts from containing mandatory wage assignments.
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Step 4
Weigh the advantages of credit counseling. While this strategy can be useful for consumers in need of support, goal-setting and problem-solving in regard to financial issues, it can also get some people into more cyclical debt with consolidation services that have high interest rates. Most consumers can negotiate with creditors or consolidate debts without the aid of a counseling service.
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Step 5
Establish an emergency fund. The best way to avoid the pitfall of payday loan debt is to be proactive. There is no such thing as a fixed budget that can be predicted to the penny, so it is vital to have a small stash of cash in a liquid savings account that is fee-free. Start simple with automatic withdrawals of 25 dollars per paycheck. You may find that you do not miss the extra money and that the automatic deposits into a savings account can accrue into a useful emergency fund quickly.
