How To Get Out Of A Payday Loan Nightmare?

All you need to know to help you out of a Payday Loan nightmare.

Payday loans are known to be a nightmare. They are advertised as a quick way for people with bad credit to get some much needed cash. They are small loans so the cash is not a lot. But these loans are essentially for people who are unemployed and do not need a long term loan but something to sustain them while they find another job.

However, it does not take a lot for a payday loan to become a nightmare. They come with high fees and interest rates if you fail to pay them back on time. Which, if you see the audience they target, usually ends up happening.

Then why do people still take out payday loans?

What are Payday Loans?

According to the payday loans definition, they are a small, short-term unsecured loan that has high interest rates. The term “payday” refers to a borrower writing a postdated check to the lender for the payday salary but instead, ends up receiving part of that payday sum in cash from the lender.

Why do People Take Out Payday Loans?

When people have more responsibilities than they have money, it is normal to become scared and not think things through. In situations like such, people can end up making some  rash decisions. And sometimes, these rash decisions can land them in the office of a payday loan officer because they think it is the only option they have left.

And as it happens, many people who borrow payday or other kinds of short term loans can get stuck in the debt cycle. And it is not because they had to make some big emergency purchases that led to them being stuck in the debt cycle. These payday loans are usually taken by borrowers for everyday, recurring expenses like utilities and rent.

And if that is not enough information to make you shake your head, 12 million Americans opt for payday loans every year and borrowers pay an average of $520 in fees on an average loan of $375. That’s pretty crazy!

How do Payday Loans Work?

When you apply for these short term payday loans, the lender will first check whether you are employed or not. You will then give them a signed check for the amount of the loan. This will also include a fee which is usually $15-30 for every $100 you borrow.

The lender will keep the check until an agreed-upon date which will most likely be your next payday. When that day comes, you can allow them to deposit the check or if you are still struggling with funds, you can pay the fee which will roll over the loan to your next payday. And of course, your interest will keep growing the entire time.

When your next payday rolls around, there is a high chance that money would be still tight. But that is not going to be your only problem then. By the time your next payday hits, you would owe much more than the original loan amount. You will have no choice but to take out another loan in order to pay your bills for that month and thus, the cycle will continue and you will keep going further and further in the debt hole.

If you look, you will find that most payday loan offices are located in low-income areas because they tend to prey on people who are already financially struggling and hope to keep them trapped in the vicious cycle of taking out more and more loans and paying huge amounts of fees while doing so. This way you will never be quite able to get rid of payday loans.

What Happens When You Stop Paying Your Payday Loan?

An important thing you should always keep in mind: you can be late on a bill but resorting to a payday loan to pay it on time is what messes up your financial situation even more. If you have to pay a late fee from your utility company, it is nothing compared to getting yourself tangled up in a greedy payday web.

If you owe payday lenders money, they can be aggressive about collecting it. If you do not have enough funds or your check does not clear, they will directly try withdrawing smaller accounts from your bank account. And in order to get a short-term loan like this, you have to give them access to your bank account.

And if that does not give you enough creeps, you are likely to be hit with overdraft fees from your bank too. The total payment you would have to make would increase more than you expect. You can use a payday loan calculator to figure out how much you will have to pay. But regardless, you should be prepared for extra costs.

While payday lenders are withdrawing money from your bank, they will also start calling and sending letters to collect the loan. They will not care about your reputation and will start contacting your friends and family as well. If you fail to answer the phone, they can even show up at your home or workplace. Talk about ruthless.

And one more thing: Since payday lenders know that you are broke, they are likely to send a loan to collections shortly after you have a first missed payment. You can avoid it all you want but you will still have to pay the debt or risk getting sued.

Being sued is the most extreme outcome but it can still happen, even if you have a small debt. They can take you to court, garnish your wages and put a lien on your property to get you to pay them what they are owed. So if you are tempted to get a payday loan, do not fall for the trap, it is just not worth it!

Thus, the mind begs the question: how to stop payday loans?

How to Get Out of a Payday Loan Nightmare?

The answer is pretty simple. Just stop borrowing money.

If you want to stop paying payday loans legally and break the vicious cycle, you need to be prepared to make the decision of never getting short-term loans again. Once you have made that decision, you can start thinking about paying back the debt you owe.

How to Pay Off Multiple Payday Loans?

You can pay off multiple loans by starting with the smallest payday loan and knocking it out as fast as you can. Once that is done, you can move on to the next smallest one and then the next and continue this until you have cleared all your payday loans.

If you have other debts and are confused about where to start, you should check the debt snowball method which can help you juggle other debts and pay off your payday loans simultaneously.

Are There Any Alternatives to Payday Loans?

Yes, you can find other alternatives to payday loans.

First and foremost, you should start by creating a safety net for yourself. Save up and keep aside $1,000 just so you do not have to depend on payday loans to pay your expenses if you get stuck in a financial rut in the future.

Saving up $1,000 might seem impossible to you right now but it can be done. You can make a couple hundred emergency dollars just by selling some items around the house. Look around your house and try to find something that is valuable yet does not have a need for anymore. Maybe electronics, furniture you do not use anymore, DVDs, clothes your children have outgrown and anything else that might give you some cash in hand.

If you are good at odd jobs, offer your expertise in things like mowing lawns, repair work or even walking your neighbour’s dog. These things will help you bring in the extra cash you need to pay your bills.

Besides making money, you should look back at your expenses and cut back on areas you can afford to cut back on so you can save money. Keep subscription services like monthly beauty boxes or Netflix for a later time when your financial situation is better. You will see how much of a difference just shifting around a few things will make.

However, if even that does not seem to do the trick, you might have to take on a second job that could help your family get to a more stable financial place. You can choose to work weekend or night shifts of a part time job or get a work-from-home job. You do not have to worry as this is only temporary until you are able to get yourself back on your feet.

Final Thoughts

The most important step when wondering how to get out of a payday loan nightmare is to make a promise that you will not take out another payday loan ever again. There is no good outcome that can ever come out of a payday loan.

The thing to change is your mindset. When you start looking at debt as “easy money”, the thought will always be in the back of your head whenever money is a little bit tight. This idea of borrowing more money to pay off your other debts is not sustainable and will never be.

Whenever you try to make a healthy financial plan, the first thing you should always start with is changing your behaviour. If you take the first step and commit to avoiding debt, you can do whatever you want.

Sandra Johnson

Sandra Johnson

Sandra Johnson was a few years out of school and took a job as a life insurance agent in California, selling coverage door-to-door for Prudential. The experience taught her about the technical components of insurance and its benefits for individuals and society, as well as the misunderstandings people often have about insurance. She has over ten years’ experience in the insurance industry, having worked as both a Broker and Underwriter, assisting clients across a broad range of industries. At Insurance Noon, Sarah diligently gathers all the required information and curates up pieces to provide meaningful insurance solutions. Her personal value proposition is to demonstrate a genuine interest in always adding value for clients.Her determined approach to guiding clients has turned her into a platinum adviser to multiple insurers.

Insurance Noon is the world's leading source of insurance related content on the web, focusing on industry news, buying guides, reviews, and much more.