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If you have an emergency and don't have savings or credit to turn to, a payday loan is a quick way to tide you over until the next payday. If you pay it off and see it as a wake-up call to cut back and gradually build up an emergency fund, no problem.
Unfortunately, life doesn't wait for you to get your finances in order, and you can fall into a payday loan trap, by rolling the loan over each payday, with more fees, or taking out other payday loans to pay back previous ones. Pretty soon, before you realize it, you're paying hefty expenses each payday, just to keep servicing your loans, or creditors start calling you demanding payment. You're not the only one it's happened to.
Getting out of the payday loan trap is a painful process. But once it's over, think how good it'll feel to have your paycheck be your own again and see your credit score start to rise. The goal is to figure out what you owe, reduce it however possible, and then work out a practical way to pay off what's left.
List What You Owe
Make a list of the payday loan companies that you have loans with. Include what information you can: their website or contact information, how much the original loan was for, how much you've paid, what they're currently doing to collect (debiting your account, attaching your wages, etc.), and see if you can find a copy of the original contracts.
Now look at each one in turn and see what you can do to reduce it. This article, What if You Can't Pay Back a Payday Loan, covers several options for dealing with lenders.
You may find out an out-of-state lender is operating illegally in your state, or you may be able to settle a loan for a smaller amount, or get an extended payment plan. How to Stop Collection Calls talks about, well, how to stop collection calls.
You may also want to check out services that help you consolidate or cut your debt and improve your credit score.
If the amounts are large or you've been given notice that somebody's filed a lawsuit against you, you may want to get a lawyer involved, because I'm certainly not one and can't give real legal advice.
But paying off the loans is only half the battle. Avoiding the payday loan trap in the future is just as important.
Look at Your Expenses
While you're dealing with your loans, start looking at your other income and expenses. There are two things you need to accomplish here: get enough money to pay off what's left of the payday loans after you've reduced them as much as possible, and reorganize your life so you'll have a little extra each payday to start building up an emergency fund, so you won't need payday loans in the future.
Temptation is everywhere. It's worse than going on a diet in a bake-shop. But you can do this, because you can keep reminding yourself how good it will feel to get control of your paycheck and your money again.
Make a list of the things you absolutely have to pay to live: rent, utilities, a budget for groceries, insurance, cost to get to work, other loans. See if you can reduce any of those. Maybe eat out less, cut back on more expensive food, find somebody to carpool with, shop for cheaper insurance or a cheaper cell phone plan. The whole family will need to help with this, because they'll need to cut back on extras too and look for cheap or free substitutes for entertainment. If you have other loans, look into renegotiating or settling with them too, or deferment for student loans.
there anything left? If so, budget a little for fun stuff and miscellaneous expenses and see if the remaining amount will cover what you think you'll have to pay each month, to pay off what's left of your payday loans over the next half dozen paychecks.
If not, is there a way you can earn some extra money? Or a friend you can borrow money from, interest-free, for a short while? Can you cut back in some major way, even temporarily for a few months, such as selling your car and using public transportation, or moving in with someone (or letting someone move in with you) to reduce living expenses?
If your credit rating doesn't completely suck, you might want to look for a consolidation loan. That will allow you to pay off the payday loans sooner, while making monthly payments over a longer period of time to pay back the consolidation loan. However, if your credit is bad, a consolidation loan will be hard to get and expensive. You might be better off putting your time into negotiating for settlements with the payday loan places and your other lenders.
Also, look for other financial help. If your income is low, see what you're eligible for, as far as government programs and charities. Think carefully before spending money with a credit repair place or entering into a debt management plan. If you need help negotiating with all your creditors, look for a low-cost non-profit organization to help. The FTC has a list of suggestions for those knee deep in debt.
You may have thought about it. If you've got other debts too that are way more than your assets, and way more than you can even pay the interest on each month, it may be the best option. It's no fun, but at least it puts an end to this chapter of your life and gives you a chance to start fresh. Bankruptcy won't get rid of student loans though, if that's your biggest problem. But if your credit is already bad, bankruptcy won't make it much worse, and it'll be a chance for a fresh start. If you think it's worth it, talk to a lawyer and see.
Whatever You Do
Whatever you do, the key to getting out of the payday loan trap and, more importantly, staying out of it, is to change how you think about your paycheck. It's like quitting smoking or losing weight, and just as hard, if you've got a bunch of payday loans out and haven't been able to pay them back for months.
Pretend that part of your paycheck isn't yours. However little you make, there's always somebody who's living on less. Pretend you're them. After your loans are paid off, or even while you're paying them off, take that extra amount and put it in a bank account, even if it's only $5 a paycheck. The account may not look like much at first, so forget you have it, just keep adding a little each payday, and as you get the payday loans paid off, stick to your budget and add whatever you were paying toward them into the bank account too. If an emergency happens, do all you can to keep from tapping into the bank account and from taking out a payday loan. See if you can figure out how to get by, but if you absolutely must, use your emergency fund and then pay yourself back.
Keep picturing what things will be like a year from now, with your payday loans paid off, no more automatic debits, money in the bank to loan yourself if you need money before the next payday. It'll be hard--probably one of the hardest things you do--but the rewards are worth it.
Category: Payday loans