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If you have ever taken out a Payday Loan, you know how hard it can be to get out from under the debt. Payday loans can quickly spiral out of control if you are not able to quickly pay them back. Today we will discuss the ins and outs of Payday loans and how you can get out of them.
What Is A Payday Loan
Payday loans are actively marketed as a quick remedy to a financial emergency. You are able to get a loan before your next payday, even if you have terrible credit. Payday loans are usually smaller and range from $100 – $1,000. The only criteria required for the loan is you need to be employed and have a bank account. After showing them proof of employment, you must give them access to your bank account. This gives them the ability to pull their money back after you get paid.
The Fine Print
When you request a payday loan, you will pay an average fee of $55 every other week. If you are unable to repay the loan quickly, these fees will continue stack up. In addition to the fees, your loan is also given an interest rate.
These interest rates are extremely high and have led to legislation in some states, to cap the interest rate. For instance, in my state of Arizona, the interest rate is capped at 36%¹. Whereas in Maine, with all the fees and interest rates combined, the rates may still be as high as 261% for a $250 two week loan!²
For those states that do not have legislation, the annual percentage rates average 391%!
This is where people run into trouble. When they can not immediately repay the loan, it starts to snowball out of control. According to A PEW Research Project, the average payday loan borrower is in debt for five months out of every year. They average $520 in payday loan fees each year, even though most of them only take out small loans of $375 at a time.³
In addition to these fee statistics, 7 out of 10 payday loan borrowers use the money for regular expenses such as rent and utilities. The majority of the loans are not used for emergency situations.
For further detail on the payday loan scam, check out this video.
Payday Loan Consequences
- By linking your checking account to the payday loan company, they will take the money out of your account immediately. It doesn’t matter if you needed that money for food or diapers, they will take every cent out until their loan is repaid.
- If you are unable to pay, you will be harassed by the company until they get their money. This means you will receive a barrage of emails, phone calls, and they may even show up at your place of employment. Collectors have been known to threaten borrowers with incarceration even though this is a violation of The Fair Debt Collection Practices Act.
What If I Refuse To Pay?
Ignoring your payday loan will not make it go away either. Your credit score will be lowered and your loan may be sent to a collections agency. The collection agency and the payday lender have the option of taking you to court to garnish your wages or put a lien on your property. This would include all the fees and interest owed to them which will only accumulate at a rapid pace. Do not ignore the company or refuse to pay back your debt!
How Do You Get Out Of A Payday Loan?
- First and foremost, you need to stop spending and borrowing money. Hopefully, you recognize that borrowing money got you into this mess. Refuse to borrow more money!
- Second, you need a budget. You need to know how much money is coming in each month and how much is going out. (Get your free budget printables here!)
- If you have more money going out than coming in each month, it’s time to cut back in some areas and possibly get a side hustle.
- See if your payday lender is part of the Community Financial Services Association Of America. If they are, according to their member best practices, they should offer a reasonable repayment plan, including a no-cost extended payment plan.
- Work with the payday loan company to get on a payment plan to stop the recurring fees from piling up.
- In a worst-case scenario, you may need to refinance the loan depending on its size. You may be able to refinance the loan with a reputable company, in order to lower the interest rate. This will help you stop the loan from growing at an exponential rate.
- Get your finances back on track with the Debt Payoff Playbook. By using the playbook, you will build up emergency savings and start paying off debt quickly.
The Quick Steps To Getting Out Of Debt
- Build A Budget / Get your free budget printables here!
- Save $1,500 -$2,000 For Emergencies
- Attack Your Debt
- Cash Reserves For 6 Months Of Expenses
- Put 18% Of Your Income Into Retirement
- Save/Invest For Future Plans
- Get Rid Of That Mortgage
- Invest For Success!
Within these steps, there are several resources to further detail your debt free journey. In order to start this journey, you need to make a commitment to yourself. You need to commit to never take a payday loan again. You can get out of this mess, it will just take hard work.
Please keep in contact with me and let me know how your debt payoff is going! I would love to cheer you on and celebrate your successes. Getting out of this debt requires focus, determination, and the right game plan. I can help you out with the plan, but I need you to provide the focus and determination. By following these steps, you will get out of payday loan debt and start living with less money stress! Please subscribe to my blog by email below so you never miss a post! You can do this, you work too hard to be this broke!