Despite your efforts, you might still be struggling to overcome your payday debt cycle. This is often referred to as a ‘payday loan trap’, which is a cycle of debt that can be so high, it’s difficult to get out of debt. These loans often trap well-intentioned borrowers, who are locked in a cycle of debt that can take a long to get out of. Payday loans debt statistics show the average borrower is in debt up to five months a year, and they spend about $520 in fees for repeatedly borrowing $375. If you’re among millions of Americans who took payday loans and want to be free of this type of debt, here are some ideas you should consider.
Payday Loan Consolidation (Debt Settlement Program)
Payday loans debt consolidation programs help you to bring all your payday loans’ debt into a single payment plan. This is an effective solution if you want to reduce your payday loan debt. Find a reputable service that specializes in payday loan consolidation as they can offer a solution that will ensure you settle your debts quickly and avoid penalties.
If you’re asking how to deal with payday loan debt, you can find two types of debt consolidation programs. The first payday loan debt management option is an actual consolidation program, where the lender takes a new loan with lower interest to pay off all pending loans. If you pick this option, it’s recommended to work with a credit counselor to avoid getting into worse debt than before.
The second option for consolidation includes dedicated payday loan consolidation programs, also known as debt relief or debt settlement. In this case, you use a third party who takes all your loans and the responsibility of repaying them, but they will charge you a flat monthly fee. This will help you stop lenders from drafting from your checking account, so you can avoid overdraft fees, and the third party also negotiates with the lender.
Prioritize High-Interest Loans
Layout your loans and take time to review each loan agreement. Always consider paying back high-interest loans first if you’re looking for how to reduce payday loan debt. Because of high interest, you will owe more, and the longer you take, the bigger your debt. If there are non-payday loans, like bad credit loans at Economics Times, you should set these aside and focus on settling high-interest payday loans first. Research to know what APRs you’re working with on each loan. This is important as it will show you which loans you need to focus on to minimize the load on your shoulders.
Negotiate for Extended Payment Plans
To get out of payday loan debt problems, you might also need to ask for extended payment plans. While payday lenders may not be your friend, they want you to pay their money back. If you know how to negotiate payday loan debt, you can call them and negotiate for an alternative payment plan. Most of the time, you can reach an agreement for lower interest rates and longer repayment terms. Ask if they have extended payment plans (EPP) you can trigger to repay your debt. If the lender is a Community Financial Services Association member, there are high chances they offer an extended payment plan, so ask for this before your loan’s due date.
Before signing the repayment agreement, ensure you read and understand the terms. No one will offer you free lunch, so be careful as some lenders may want to replace one bad term with another. Only accept the offer if the extended payment plan does not come with higher interest.
Consider Non-Profit Credit Counseling
It’s not easy handling finance if you don’t have a background in the subject. If you’re asking, “how does payday loan debt work?”, you should seek help from someone with the knowledge and skills. A financial expert will assist you in navigating the complex world of payday lending and can help you make sense of the fine print. Also, they will help you create a plan that will be the solution to get out of debt.
However, when stuck in a payday debt cycle, you might not have the cash to hire an expert. In this case, a non-profit organization that offers debt counseling can be a good choice. Such organizations will sit you down and help you understand how your financial situation can be turned around. While looking for a non-profit, be careful of some companies that masquerade as not-for-profit organizations. Do your homework to find a trusted organization.
Work Overtime
If your debt is piling up because of interest, it could mean you’re not earning enough to repay the debt comfortably. For someone working an hourly job, you can get overtime payment if you clock more hours. This means you could get 1.5 times the hourly rate for each hour you work over the normal workweek. With this, you will be making more. Your money can add up fast with overtime, which is ideal as the extra income can all go into repaying your pending debt.
Don’t Take On New Loans
Taking on payday loan debt leads to a debt trap if you are not careful with the process. To quickly get out of debt, you need to avoid the temptation to borrow more. Instead, find things you can do to raise the money you need, like working overtime or finding side jobs for extra cash. Short-term relief through a loan can lead to long-term indebtedness, which is difficult to get out of.
Conclusion
Breaking a debt cycle is not easy, but making the first step will give you hope your future can be better without piles of debt. When you don’t have debt hanging over your head, you can feel better and have the freedom to plan your future. These tips will guide you to find your way out of payday loan debt.