Debt Consolidation / Get Rid Of Payday Loans

How to Get Rid Of Payday Loans: Everything to Know

Written by Ascend Team
Updated Nov 13th, 2023
The information provided in this article does not, and is not intended to, constitute legal or financial advice; instead, all information, content, and materials available in this article are for general informational purposes only. 

A payday loan is a small amount of money with a high interest rate. For example, you can borrow only a few hundred bucks and you have to settle the debt within a few weeks.    Unfortunately, you may be at a point where you can no longer resolve your 2 week - 3-month payday loans. So, how do you get rid of payday loans legally? 

What are payday loans and how do they work?

Payday loans are infamous for its astronomical interest rate. It has turned into the face of predatory lending in the USA. You should consider reading the Federal Trade Commission instructional piece on payday loans before diving in.

  1. The average interest rate of payday loans is around 300%.
  2. You have to pay off the debt within 2 weeks.
  3. The CFPB or Consumer Financial Protection Bureau report says 80% of the payday loan borrowers cannot repay the loan within 2 weeks, so these loans are rolled over or renewed.
  4. Then they have to pay back the outstanding balance with around 500% interest rate and with non-payment of the balance the interest rate will surge more and more.

Options Calculator To Get Rid of Payday Loans

You have options to get rid of payday loans. Below is a debt options calculator to help you get rid of payday loans once and for all.

The calculator shows the cost of different options, the pros and cons and alternatives to help you be the most informed.

Now take a look at how a payday loan works?

As we know, a pay day loan allows you to borrow a sum of cash for a short period of time, even if it is just a week.

  • You can borrow from $50 to $1000 under the payday loan category. Usually, people are attracted to payday loans because you can get it very quickly.
  • Another reason people usually tend towards payday loans is you can get it without many formalities. One official identification paper and the bank account number is enough for lending payday loans. 
  • Your next payday is the date when you have to pay the entire outstanding balance. The next payday date generally takes 15 days to come.
  • You can repay your payday debt in 2 ways. Either you can draw a post-dated cheque in favor of the payday lender or you have to give electronic access of your bank account to your payday lending firm.

* You may know about the post-dated cheque. The cheque is written by the drawer in favor of the payee payday lender. A payday lender typically charges $10 to $15 as interest for every $100 you borrow. Based on APR or Annual Percentage Rate calculation, your interest rate for payday loans will be around 300% to 500%. There are state restrictions for payday loan companies

Why are payday loans bad for most people?

The structure of payday loans is basically an ongoing cycle. If you take one payday loan it will push you towards the second loan. From the second payday debt, you will be forced to take a third payday loan. 

You are already familiar with the high-interest rate of payday loans. A Pews report states almost 12 million people have taken out a payday loan in America. More than 3000 people have served arrest warrants due to non-payment on the outstanding balance.   So, you can think about various ways to get out of payday debt if you have already taken out a loan.

How can you get rid of payday loans through debt settlement?

The settlement company will calculate at first how much you owe from the payday lenders. Then they will start the negotiation with the payday lenders to reduce the amount to an adjustable amount that you can afford to pay. 

The debt settlement attorneys are the ideal person who can cut down a substantial portion from your payday loan interest rate so that you do not have to pay off any additional fees.      

When is debt settlement right for payday loans?

Debt settlement is also known as debt negotiation or debt resolution. The debt settlement program is generally set up by profit-organizations.     Have a look at how the debt settlement process works:

  1. The debt settlement firm will first calculate how much the payday lenders owe from you.
  2. Then the debt settlement specialists will negotiate with your payday lenders to cut down the outstanding balance to an amount that is affordable for you. 
  3. The settlement lawyers can ensure it for you that you may not have to pay off any additional interest rates or fees.  
  4. You have to pay an amount each month to settle the debt. You have to pay the amount for each month until the debt is settled.               

Pros and Cons of debt settlement on payday loans:

The payday loan debt settlement generally acts in the same way as the other loan settlement process works.         

Payday Loan Debt Settlement Pros:

1) You can pay off the payday loans faster than before: 

The debt settlers can help you to repay your payday loans quicker than before. They will negotiate with your payday lender to cut down the interest rate as well as the outstanding balance. So, with the help of the debt settlers, you can pay off the payday loan outstanding balance more quickly.

2) Debt settlers will help you to avoid collection calls and lawsuits: 

You may know about the normal scenario that non-payment of a payday loan can invite collection calls on your phone. The payday debt settlers can provide you with the right kind of guidance and legal help so that you can avoid collection calls and lawsuits filed against you. 

3) You have the option to get rid of late fines and penalties:

You may know it well that a person generally comes under late fines and penalties if he/she does not pay off the debt. The payday debt settlers are some real experts. They will help you with all the right advice so that you can pay back the debt.  

However, you can read more about the positive aspects and negative aspects of the payday debt settlement for broadening your view.        

 Payday Loan Debt Settlement Cons:

1) Legal payday loan settlement will impact your credit score in a negative way:

Your loan-related liabilities are generally reported to the credit bureaus for each month. Your account status will show whether the payment is on time or it is late or you have made the full payment and the account is closed. 

You may imagine that making a late payment will be reported negatively on your account status and the result is it will affect your credit score in a negative way.   

2) There may be late fees and interest accrued when settling the debt

Debt settlement firms may be able to negotiate on the interest amount, but there may be late fees and interest on payday loans can be high, so the debt settlement firm may be settling debt on a higher amount. You may considering reading our comprehensive list of debt settlement pros and cons.

However, you can opt for a debt consolidation program rather than a debt settlement if you are worried about a bad impact on your credit score. The chance of a bad credit score is nil with the best payday loan consolidation program. So, you can go for the debt consolidation program than debt settlement if you do not want anything negative on your credit score. 

What About Bankruptcy to Eliminate Payday Loans?

Payday loans are often referred to as unsecured debt because you are not securing an asset to cover that loan if you fail to pay. As such, you may look into bankruptcy if you cannot pay your payday loans. In this case, you may want to take one of Ascend's bankruptcy calculators to help you estimate costs and pros and cons.

I need cash right now. What are some payday loan alternatives? 

You can choose several options other than payday loans. Please have a look what are the options you have instead of payday loans? The FTC also provides alternatives which you may consider.

1) You may look at the Peer-to-Peer lending option: 

Peer-to-Peer lending or P2P lending is a better alternative than payday lending when you are facing some instant monetary crisis. For example, you may take out the option of CircleBack Lending who may offer you a personal loan as per your need. 

2) A personal loan or credit union loan can do the needful for you:  

A personal loan or a credit union loan can do the needful for you. The interest rate of the personal loan is much lower than the payday loans. 

You can consider taking out a short-term loan from a Credit Union too. For taking a loan, you have to be a credit union member at first. Credit Unions generally offer short-term affordable loans with a low-interest rate for the members. 

3) You may use a paycheck advance app:

People who have a regular income with steady employment may take out the paycheck advance facility. Have you heard about Earnin? It is a paycheck advance app and you can borrow around $100 in urgency and that too without paying any kind of interest fee. 

You have to take care of one or two things before taking out a pay advance loan. Number one is, you may need to obtain a pay advance membership before you can get a pay advance loan. 

The second point is you cannot ask for an unlimited loan from them. They will assess your capability first before giving you a loan.  

4) Lending Circle may be a good option for you:

Lending Circle is a much better option for you than taking out a payday loan. Online companies have started a formal lending program where you can join with your families and friends. You can get low-cost loans in the Lending Circle in 2 conditions. 

First, your DTI or Debt-to-Income ratio must be below 50% and the second point is you must have a steady income. 

6) Take help from close family members and friends

Look, we usually take payday loans for a short span and the amount is not a large amount too. You can consider taking out the loan from close-knitted family members and friends. Chances are that you will be saved from paying a towering interest rate. Just paying off the principal will be okay if you take it from family & friends.   

Lastly, in the concluding paragraph, it is good to say that you must set aside some money, for example, $200, every month. It will do more good for you than paying off an astronomical interest rate which is sometimes much bigger than the principal itself.

Author biography: This article is written by Catherine k. Burke and she loves to write about the financial problems of life. She motivates people to face difficult situations positively to get a better outcome. She faced financial hardship in her earlier days with her payday loan debts. It made her life full of stress. After recovering from that situation, she decided to create a site online payday loan consolidation to help people to get out of debt stress.