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.
Is 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.
7:21 p.m. March 22
I can't do any of that because the pdl is garnishing my wages. I dont even see my money
8:33 p.m. March 22
Did you lose a lawsuit? If not, it may not actually be garnishment. You may have voluntarily assigned your wages to them (buried in some paperwork somewhere that you didn't realize you were signing), and if so, you can revoke it. Talk to your employer and see what exactly the authority is for sending part of your wages to someone else. If it's something you signed, see if you can revoke it by notifying both your employer and the company.
10:07 p.m. March 22
If somebody took out a loan from an illegal company becuz they went couldn't get it in their state an went online, their just as much breakig the law as the company. They made the deal so they might as well get used to it and pay.
10:22 p.m. March 22
I think the term "predatory lending" is thrown around too often, and I usually tend to lean toward personal responsibility, but if a state legislature has voted against allowing out-of-state loans to their residents, then I do think that companies who work around the law are entering into the predatory category. To use an over-used phrase, it's the "will of the people" that such loans not be allowed, and therefore it's predatory to entice people to take them illegally.
10:49 p.m. March 22
How about contracts between consenting adults? Taht's all it is. You can't have it both ways, taking out the loans when you want and then not paying them back when you want.
11:50 p.m. March 22
I think most people who wind up with illegal loans don't know they're illegal to start with, because they don't keep up with the laws. Heck, I can hardly keep up with the laws. They just changed again in my state. So people trust a company to be licensed and doing business honestly, because in a lot of cases internet payday loan companies really are within the laws, either registered with the state or with a local presence. In some questionable cases, it would take a court case to figure out exactly whether the loophole they're using is allowable.
Same for brick-and-mortar payday loan stores near state lines where they'd be regulated differently across the line. You can go across the state line to them but they can't advertise to you, but sheesh, how do you prevent ads in newspapers and stuff like that to stop at the state line.
And then, yes, there are just plain illegal lenders, or companies pulling dirty tricks like charging a non-refundable fee to apply and then turning down most everybody for the actual loans.
Let's face it, there may be a bit of bluffing if you think a loan company that you've paid and paid each month might not be licensed or allowed in your state, and you say they're illegal and you won't pay anymore. Maybe they think they could win a suit but it's just not worth it to prove they're legal, so they'd rather just write off your loan. No more or less than the bluffs that collection agencies use when they threaten to sue or garnish your wages and stuff.
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