How to Get Out of Payday Loans

By Mackenzie Wright

  • Overview

    Payday loans can seem like a solution when the rent or bills are due before the next paycheck comes, but such loans can quickly turn into a snowball rolling downhill. If you find yourself needing to take out one loan immediately after the other is paid, just to make ends meet, you are in a financial trap, and need to get out of it as quickly as possible. There are several things you should know to help you get out of the vicious payday loan cycle.
    Money down the drain
  • Make Payback Quick and Final

    • Step 1

      Raise the money to pay back the loan once and for all, without creating a cycle in which you will need to take out the loan again. Work overtime; take on a second, temporary job; do odd jobs; have a yard sale; cut corners--whatever it takes to pay back the loan and not have to take it out again.

    • Step 2

      Look for a cheaper loan source. Payday loan interest is high, and can mount quickly. It is more sensible and will save you a lot of money to borrow the money from a family member or friend and pay it back in increments. If you can't borrow money from someone you know, consider applying for a credit card or a small loan. The interest and fees will be less, and you will have more time over which to spread out payments.
    • Step 3

      Contact your Payday lender and ask to make arrangements. Tell the lender you do not have the money to pay back the loan all at once, but that you would like to make arrangements to pay it off monthly. This will keep you from having to continually rack up interest and fees by taking out one loan after another.
  • Seek Recourse

    • Step 1

      Make sure your loan is legal. If your Payday lender is not willing to work with you, review your contract to see if you have any rights. For example, if you live in a state that does not legally allow payday loans, or if the lender is not a licensed lender, you may be able to take action against him. If payday loans are legal in your state, make sure your lender is following the rules. Contact your state loan regulator to find out if your lender was abiding by state laws, and report lenders who do not.
    • Step 2

      Know your rights. According to the Federal Trade Commission, lenders cannot require you to sign a voluntary wage-assignment clause in which you agree to the garnishing of your wages, nor can they require you to waive your rights to legal counsel or a court hearing. Many payday lenders still put these clauses in their standard contract. If you find any clauses in your contract that are against the Federal Trade Commission rules, write the lender a letter revoking your agreement.
    • Step 3

      Talk to your banker about stopping payment on the check, closing the account or getting overdraft protection. This will not settle the debt; however it can stop repeated attempts at depositing the check and the attendant racking up of bounced-check fees and overdraft charges. In some states, it is illegal to stop a payday loan check, and they may take immediate action against you; however, if you contact the lender, they may be willing to work out an arrangement when they see they will not get the money from your bank account.
    • Step 4

      Avoid taking out payday loans altogether in the future. Once you've gotten out of the payday cycle, try to build an emergency cash fund that you can tap in emergencies, without interest. In many cases, you can save money simply by contacting your landlord or bill collector, requesting an extension and paying a late fee.
    • Skill: Moderate

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