How Do I Get Out of Payday Loan Debt?

What Is a Payday Loan?#

A payday loan is a cash advance given to an individual with the understanding that they will be paying it off with the next paycheck they receive. Payday loans are typically taken out in order to pay off an urgent debt that can’t be paid, such as an upcoming rent payment or a sudden medical emergency that isn’t fully covered by insurance.

What’s the Danger With Payday Loans?#

The ultimate danger of payday loans is that you can easily become trapped in an endless cycle of taking out loan after loan. The interest rates that apply to a payday loan are so high that it can become extremely difficult to pay back the loan with only the money in your next paycheck. According to the Federal Trade Commission, if you were to borrow $100 for two weeks, “the cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391%. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.”

While all interest rates for payday loans may not reach the extreme of 391%, it is crucial that you research everything you can before making a decision.

How Can You Get out of the Cycle?#

If you’re already stuck in the payday loan cycle, focus on cutting back on your spending. If you have a crisis budget in place, you already know exactly what your priority expenses are. If not, it’s time to cut back on all non-essential purchases and bills. While you’re working toward paying back your payday loans, try to find as many ways to save money as you can. A $5 daily coffee on the way to work could end up costing you $25 per week. That’s $25 that could be used to pay off your payday loans.

What Are Your Options Instead of a Payday Loan?#

If you haven’t fallen into the payday loan trap just yet, there are many alternatives that you can try to solve your problems, instead of creating more.

• Borrow from a friend. When you borrow from a family member or friend, you should still pay back the loan in a timely manner, but you aren’t threatened by financial ruin if you’re late paying them back.
• Sell your assets. If you have items in your possession that can easily be sold, this might be a better option.
• Ask creditors. If the reason you’re looking for a payday loan is because of a credit card bill, be honest with your creditors and ask if they can grant you an extension on your due date.
• Avoid payday loans entirely. If you have an emergency fund in place, you will be able to draw from it in times of need.

Start With a Free Debt Analysis#

Cambridge Credit Counseling provides a free, one-on-one debt analysis to help determine the most appropriate course of action for your financial situation. This session looks at your full financial picture, including all of your debts, so you can see your options clearly before deciding on any next step.

How Credit Counseling Works#

Credit Counseling is an educational experience that includes a complete review of your entire financial profile by a certified credit counselor. They’ll review all of your income and expenses and suggest ways to reduce your expenses in order to meet all of your monthly obligations. One outcome of a credit counseling session could be enrollment onto a debt management plan. Through this plan, you could enjoy a variety of benefits offered by your creditors to help you get out of debt faster than you could on your own making just the minimum payments on your accounts. Reduced interest rates, elimination of fees, and the convenience of making just one monthly payment to cover all of the accounts enrolled on the plan are examples of some of the benefits you could enjoy to help you safely get out of debt.

• Credit Counseling
• Housing Counseling
• Bankruptcy Counseling
• Student Loan Debt Counseling

A Debt Management Plan May Help You Repay Without New Loans#

Cambridge Credit Counseling’s nonprofit debt consolidation service is a way for people to pay off their debts without taking out another loan. A counselor can walk you through whether this kind of plan fits your situation as part of your free debt analysis.

Cambridge Credit Counseling Is a Trusted Nonprofit#

Cambridge Credit Counseling is a 501(c)(3) not-for-profit agency established in 1996 that has provided credit counseling and financial literacy education to consumers nationwide since its inception. Our counselors are certified through the National Foundation for Credit Counseling, and Cambridge Credit Counseling is a member of both the National Foundation for Credit Counseling and the Financial Counseling Association of America.

What to Do Next#

If payday loan debt is weighing on you, consider reaching out to Cambridge Credit Counseling for a free, one-on-one debt analysis. A certified counselor can review your full financial picture and talk through options, including credit counseling and debt management plans, so you can decide what next step makes sense for you.