Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
When you need money now but won’t get paid until next week, a
payday loan or
cash advance might seem like an attractive option. You get the cash you need today and just pay it back when your direct deposit hits.
W However, you should be mindful that interest rates and fees are can be astronomical, often trapping borrowers in a cycle of debt that feels impossible to get out of.
The good news is that it is possible to break free. With the right strategies, you can get your finances back on track. So if you’re struggling to claw your way out of a hole, keep reading to learn how to get out of a payday loan.
The devastating debt cycle of payday loans
Here’s the harsh reality: Payday loans trap borrowers by design.
Sky-high fees are the first part of the trap. Often expressed as a fee per $100 borrowed, the amount you pay on top of the loan amount is often comparable to an interest rate of 400% or more — a number exponentially bigger than the
annual percentage rate (APR) typical of credit cards or traditional loans.
As if that weren’t bad enough, the agreement usually expects you to clear your payday loan debt (including fees) within a very short timeframe, usually just two weeks. And since many borrowers find themselves unable to pay back the debt on time, many extend the loan (what’s known as a rollover) or take out a new one, adding even more fees to the original amount.
You can probably see how quickly this becomes a cycle. You get behind on one payday loan, so you take out another, then another, racking up more and more fees as you go. It’s like quicksand — the more you struggle, the deeper you sink. And if you don’t learn how to pay off the payday loans, you might feel like you’re gasping for air.
How to break the debt cycle
Once a borrower takes out a payday loan, debt relief is often hard to find. But it’s not impossible. Here are some strategies to help you pay off the loan and move on:
1. Look for financial assistance
Reach out to local charities, nonprofit organizations, or government agencies that offer financial assistance programs. These programs may provide grants or debt management counseling to help with payday loans so you can get back on your feet.
2. Talk to a credit counselor
A reputable credit counseling agency can help you create a budget, negotiate with creditors, and develop a debt management plan that
consolidates your payday loans. They can also provide guidance on ways to potentially improve your credit score and manage your finances in general, making them a great resource.
3. Borrow money from family or friends
If possible, consider asking trusted family members or friends for a loan to help you pay off your payday loans. Consider creating a clear repayment plan to prevent the
money you’ve borrowed from straining your relationships.
4. Request a repayment plan
You may contact your payday lender and ask if they offer extended repayment plans or other options that can make your payments more manageable. Some may be willing to work with you if you demonstrate a commitment to repaying the debt. Understanding the terms of the extension will help you manage better the situation.
5. Use lower-interest debt to pay off the loan
6. Consider bankruptcy or debt settlement
In extreme cases, bankruptcy or debt settlement might be options to explore. However, these should be considered only as a last resort due to their significant long-term impact on your credit score and overall financial health. It's crucial to fully understand the consequences and explore all other alternatives first. Consult with a financial advisor before making any decision.
Frequently asked questions
Here’s more about payday loans and how to change your financial habits.
Can I just stop paying my payday loans?
Unfortunately, it’s not that simple. Stopping payments on your payday loans without a legal process like bankruptcy can lead to serious consequences, like:
A damaged credit score. Missed payments get reported to credit bureaus,
damaging your score and making it harder to get loans, rent an apartment, or even secure a job.
Collection activity. Lenders may send your debt to collections agencies, which may use aggressive tactics or even legal action to collect the money you owe.
Wage garnishment. In some cases, lenders can obtain a court order to garnish your wages, which means an automatic paycheck deduction to repay the debt.
Bank account levy. Lenders might also be able to levy your bank account, seizing funds you thought were safe to cover the debt.
Are there any payday loan forgiveness programs?
State-specific programs. Some state programs offer relief to payday loan borrowers through resources like grants or debt consolidation assistance.
Nonprofit organizations. Certain nonprofit organizations may offer assistance with payday loan debt, including financial aid or access to a debt management counselor.
Lender hardship programs. Some payday lenders offer hardship programs that may offer reduced interest rates, extended repayment terms, or other forms of relief.
It's important to research any potential forgiveness program carefully to make sure it’s legitimate and to understand the eligibility requirements. Don’t be fooled by a scam that promises to eliminate your debt for a fee.
How do I stop relying on payday loans?
You won’t break the payday loan cycle overnight. But a combination of strategies can help you strengthen your financial status over time.
Build an emergency fund. You can start setting aside money each month — even just a small amount — to
create a financial cushion to help cover unexpected expenses. For example, use EarnIn’s
Tip Yourself tool to effortlessly save with every paycheck.
Improve your credit score. Better credit means better rates on traditional loans. By paying bills on time and keeping your credit utilization low you can improve your credit score.
Seek financial counseling. A nonprofit credit counseling agency can offer guidance on budgeting, debt management, and improving your financial habits.
EarnIn is a safer, smarter alternative
EarnIn is the better alternative to payday loans. The
Cash Out tool lets you access your pay as you work — up to $150/day with a max of $750 between paydays.
It’s
not a loan or a cash advance. It’s a
safer alternative that gives you early access to the money you’ve already earned, with no credit checks, no interest, and no mandatory fees.
Download EarnIn today to make any day payday.
