Payday loans are costly, causing most borrowers to renew their loans by paying additional fees and sinking deeper into debt. This makes them end up paying more than they borrowed. The issue is that most payday loans come at very high-interest rates, making them expensive to borrow. These loans need to be paid as a lump sum, including the principal amount and fees.
Some lenders might want access to your bank account where they may make several withdrawal attempts when the loan is due, resulting in a bank overdraft. Others can be cruel debt collectors, primarily when you can’t repay the loan. Outlined below are five tips for escaping the payday loans trap.
1. Consolidate your payday loans
Payday loan consolidation is a solution that can reduce your financial distress by combining all high-interest loans into one, creating a smaller, manageable payment with reduced interest rates. Payday loans are meant to be paid off in weeks, but they can be extended or renewed, taking months to repay. This results in more debt.
Consolidating your payday loans helps you break your debt cycle, allowing you to pay the debt in fixed installments over an extended period. This avoids lawsuits and bankruptcy, stops automatic debits, and improves your credit. You may consult Real PDL Help or any other reliable institution for advice and assistance with payday loan consolidation.
2. Consider extended payment plans (EPPs)
If your lender is a CFSA (Community Financial Services Association of America) member, you can leverage the EPP plans. Their best practices give payday loan borrowers an option to enter into an EPP, meaning you’ll get additional time to repay your loan without any extra interest or fees added to the service. Moreover, you can’t be handed over to collections unless you default on the EPP.
3. Go for credit counseling
Credit counseling agencies help consumers become debt-free. The absence of payday loan regulations means that these loans come with unique challenges. Nevertheless, a credit counseling agency can help free you from your debt. They can negotiate a settlement, restructure the payback or help you create a budget and debt management schedule that can help you find the money to repay your debt. Participating in a debt management plan (DMP) means your credit accounts are closed, stopping your credit history. Upon leaving the DMP, your credit is unfrozen.
4. Consider other loan sources
While payday loans are easy to rely on in case of emergencies, they’re expensive and might land you in financial quicksand. Don’t let your poor credit score scare you into going for a cash advance loan whose APR (Annual Percentage Rate) is most likely in three digits. You can find better loan alternatives with favorable interest rates and repayment periods with a bit of research. A personal loan can help you meet your financing needs like a payday loan would have without the absurdly high-interest rates. You may also consider credit union’s payday alternative loans.
5. Ask for help from family and friends
Taking money from family and friends can be humbling, but it can help get you out of a payday loan cycle. The best part is that you can receive money at a zero-interest rate or as a gift.
Endnote
Leaving the payday loan cycle can be extremely difficult. However, applying these tips can help you escape the payday loans trap.