A payday loan can seem like a quick fix when you’re short on cash and an unexpected expense comes up. With this type of borrowing, you quickly get the cash you need.
However, repayment can be challenging. Understanding how to get rid of payday loans can help you take control of the debt before it takes over your next paycheck.
Why the Payday Loan Cycle Is So Hard to Break
Nobody takes out a payday loan because they want another financial burden. But when an urgent expense comes up and there is no room left in the budget, a payday loan may feel like the only way to get the money you need in a hurry.
How a Quick Fix Can Turn Into a Debt Cycle
Unfortunately, a payday loan can quickly turn into a financial trap. Some of the reasons for this include:
- You have very little time to repay: Many payday loans require full repayment, including fees, on your next payday. Usually, the lender will require you to pay back the loan within two to four weeks.
- The loan can cost a lot: A typical fee for a payday loan might be $15 for every $100 borrowed, according to the Consumer Financial Protection Bureau. That means if you borrow $300, you could owe $345 after two weeks, a fee that equals an annual percentage rate (APR) of almost 400%.
- You have less money for everything else: Once you repay the loan, you may not have enough left for rent, groceries, utilities or transportation. That can leave you looking for another way to cover the gap.
Start Here If Your Payday Loan Is Due Soon
If you are struggling to repay a payday loan on time, the first step is to look at what you can realistically afford. Start with rent, utilities, food and anything else you need to get through the month.
Then, look at what you have left and what you can realistically do about the loan.
You may not be able to pay the full amount on time. But contacting the lender before the payment is due may give you more flexibility.
Ask the Lender About an Extended Repayment Plan
Some lenders offer extended repayment plans that allow you to spread the balance over a longer period. Instead of having to find all the money at once, you may be able to make smaller payments over time.
If the lender agrees to a new payment arrangement, get the agreement in writing. Make sure you understand what the new payment would be, how many payments you would make, whether additional fees or interest would apply and how much you would pay altogether.
State laws can affect your rights and what the lender must offer, so check the rules where you live if you’re not sure about your options.
If you still can’t afford the payments, a nonprofit credit counselor or legal aid attorney may help you explore options.
Look for Breathing Room in Other Bills
You may have more flexibility with another bill. Call your utility company, landlord, medical provider, insurer or phone company and ask whether they can move the due date, give you a brief extension or divide the balance into smaller payments.
Confirm the payment amount, due dates, fees and interest, and learn what happens if you miss a payment. Get the agreement in writing so you have a clear record.
How to Stop Automatic Withdrawals
If the lender has permission to take money directly from your bank account, you can revoke that consent. Tell the lender in writing that you are withdrawing authorization for automatic electronic payments and notify your bank or credit union. Keep copies of your notices.
You can also ask your bank to stop a scheduled payment. To stop the next payment, give the bank a stop-payment order at least three business days before the scheduled date. Ask about fees and any written-confirmation requirements. If the bank asks for written confirmation of an oral order, provide it within 14 days.
Stopping an automatic withdrawal does not erase the debt. However, it helps you keep control of your account while you work out how to repay what you owe.
What Happens If You Cannot Pay a Payday Loan?
If you cannot repay the loan, what happens next depends on your loan agreement, your lender and the laws in your state.
You could face additional fees, collection calls or other collection activity. If the debt gets reported to a credit bureau, it could also affect your credit.
Lenders and collectors still have to follow applicable laws. The federal Fair Debt Collection Practices Act prohibits abusive collection practices and mainly applies to third-party debt collectors. Other federal and state protections may also apply.
A payday lender generally needs a court order to garnish your wages or bank account. This is different from an automatic withdrawal you previously authorized.
If you receive a court notice, don’t put it aside and hope it goes away. Get help understanding what it means and what you need to do.
Alternatives to Payday Loans for Urgent Expenses
A payday loan may provide cash quickly, but it can also leave you with a large payment when your next paycheck arrives. Before borrowing, ask whether you actually need cash or simply need help covering a particular expense.
Credit Union Payday Alternative Loans (PALs)
Some federal credit unions offer payday alternative loans, or PALs. These small-dollar loans are repaid in installments.
Under National Credit Union Administration rules, participating federal credit unions must follow limits on loan amounts, fees and repayment terms.
To take advantage of this option, you’ll generally need to join the credit union and meet its eligibility requirements. If you qualify, compare the interest rate, fees, monthly payment and total cost to make sure the loan fits your budget.
Paycheck Advances
Some paycheck-advance services, often called earned wage access, let you access earned wages before your normal payday. An employer may offer this benefit, or an app may provide similar access. Terms and repayment methods vary by provider.
Fees may apply, and taking money early means you’ll have less available on payday. Check the fees and timing carefully, especially if you might use the service repeatedly.
Emergency Bill Assistance Options
If you need help with food, rent, utilities, medical care or another essential expense, another loan may not be the answer.
Local nonprofits, community action agencies, utility hardship programs and government programs may offer help to eligible households. Medical providers may also offer financial assistance or interest-free payment plans.
Call 211 or search its local assistance directory to find programs that may help with food, housing, utilities, medical care and other basic needs.
Help From Family or Friends
If someone close to you can help, borrowing from them may cost less than using a payday lender. Agree on how much you’ll borrow, when you’ll repay it and what happens if you’re late. Putting the agreement in writing can help prevent misunderstandings.
If repaying a large amount would be difficult, consider whether help with a specific bill or essential expense would work better.
How to Avoid Payday Loans When You’re Short on Cash for Recurring Bills
If you regularly need payday loans to make it to your next paycheck, you may be dealing with a recurring cash-flow gap rather than a one-time emergency.
Look for ways to change that pattern. Ask bill providers whether you can adjust due dates, review subscriptions and recurring charges and find fixed expenses you can reduce. Even a small emergency fund can eventually give you a cushion against unexpected bills.
A nonprofit credit counselor can also help you review your budget, income and debts. Recurring shortages usually require changes to your cash flow, not another short-term loan.
Conclusion
If you already have a payday loan, deal with the immediate situation first. That means:
- Protecting your essentials
- Asking the lender about repayment options
- Looking for flexibility in your other bills
- Addressing automatic withdrawals that could drain your account
Remember, you don’t have to fix everything at once. Simply start moving in the right direction. Eventually, you will eliminate the debt.
