How To Get Out Of Payday Loans 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.

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. Moreover, 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.

The Perils of Payday Loans: How to Safeguard Yourself

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.

Exploring Better Options Than Payday Loans

To avoid relying on payday loans, begin by establishing a financial safety net. Save at least $1,000 for unexpected expenses. You can kick-start this fund by selling unused electronics, furniture, or clothing. Additionally, consider offering services like lawn mowing or minor repairs to generate extra cash quickly. These efforts not only provide immediate funds but also reduce the need for borrowing.

Review your budget and identify areas where you can cut expenses. Postpone non-essential subscriptions and luxuries until your financial situation improves. Small adjustments can make a significant difference in your savings.

If these steps aren’t enough, consider taking on a part-time job temporarily. Many part-time positions offer flexible hours, allowing you to work evenings, weekends, or from home. This additional income can help stabilize your finances and build a stronger financial foundation.

While a part-time job may seem daunting, remember it’s a short-term solution. Focus on the benefits: increased financial security and independence from high-interest loans. Once your finances stabilize, you can reassess and possibly reduce your workload.

By prioritizing savings, generating extra income, and managing expenses wisely, you can avoid the pitfalls of payday loans. Building a financial safety net and exploring alternative income sources not only protect your finances but also empower you to achieve long-term financial stability.

Final Thoughts

To break free from a payday loan nightmare, vow never to take another payday loan. These loans offer no positive outcomes.

Shift your mindset away from viewing debt as “easy money,” which can tempt you when finances are tight. Borrowing to pay debts is unsustainable.

Start any financial plan by changing your behavior. Committing to debt avoidance empowers you to pursue financial freedom.

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.