Home Debt Payday Loan Debt: A Guide To Breaking the Debt Trap

Payday Loan Debt: A Guide To Breaking the Debt Trap

by Lyle Solomon
Payday Loan Debt A Guide To Breaking the Debt Trap

Payday loan companies are not lenders; they are businesses whose sole objective is to make a profit. At first glance, the terms of the payday loan agreement do not appear to be too detrimental, so you accept the loan. You may have had an emergency or need fast cash, and the payday loan advertisements were pretty appealing. Thus, the option to take out the loan came to you swiftly.

Therefore, you had no idea what would happen after the two-week repayment period was finished. You’re now having difficulty repaying it. You also have other obligations to consider, such as rent, utilities, food, other bills, and so on. When you cannot repay the loan, having no choice, you acquire a new payday loan to compensate for the previous one (a process known as “rolling over”), incurring additional fees and raising the cost of borrowing.

Now, this goes on for weeks or months, with you consistently paying the interest but not the principal. Payday loan debt becomes more expensive and hard to repay over time.

Nobody likes being in debt, but when there seems to be no way out, it’s plain miserable. It is tough, but not impossible, to break the cycle of payday loan debt.

Here are a few ways that may provide you with the payday loan help you need:

Payday Loan Consolidation Through a Loan

One way to lessen the burden of payday loan debt is to consolidate your payday loans. Debt consolidation loans are meant to combine all your high-interest loans into one low-interest one.

Here, you take out a payday consolidation loan. You can borrow money from a bank or a lending institution at a low-interest rate. With this loan, you repay your existing payday loan debt. Only this loan remains after the outstanding balance is paid, which you can slowly and systematically repay through monthly payments.

The majority of lenders give you one to five years to repay the loan. If you have a low credit score, you may still be eligible for a debt consolidation loan, but you will likely pay a higher interest rate than if you had a higher score.

Consolidating your payday loan debt into a new loan allows you the opportunity to pay off your debt quickly, putting an end to this debt cycle.

Drawbacks to Consolidation Loans

A consolidation loan may be a faster way to get out of the payday loan hassle, but it has a few negative points as well:

●     You may end up paying high-interest rates instead of low-interest rates. It can happen if you have low credit scores.

●     A low-interest rate may not save you money in the long run if you take a lot of time to pay off the loan. If you take out a 5-year personal loan instead of a 2-year loan term, you will end up spending more, depending on the interest rate of the new loan.

Payday Loan Consolidation Program

Another way to get out of payday loan debt is through a payday loan consolidation program. Several organizations provide similar services, and these organizations focus on the goal of getting you out of debt as quickly as possible and with as little hardship as feasible.

In the payday loan consolidation program, first, your situation is reviewed by a counselor. Then your total debt plus your expenses are calculated to see how much you will be paying every month towards your debt payments.

After you enroll in the program, the counselors negotiate with your creditors to reduce the interest rates on your loans.  After all the arrangements are made, all you have to do is make single monthly payments to the payday loan consolidation company that will distribute the payment to your creditors on your behalf. You won’t even need to speak with your creditors because the counselors will take care of everything on your behalf.

There Are a Few Disadvantages to This Method

●       You will have to pay a professional fee to the consolidation company and may charge a hefty price for their services. So, before choosing a consolidation company, study their policies thoroughly.

●       If you fail to make payments on time, it might disrupt the program.

Debt Settlement

Debt settlement, aka {debt reduction or debt resolution}, is a settlement between the debtor and the creditor. Here the creditor agrees to let go of a large or half of the amount due, and you make a lump sum amount in exchange for the creditors’ agreeing to settle their debt fully. 

This process is more straightforward for debtors because it helps avoid bankruptcy while reducing the outstanding balance. Debt settlement is also favorable for creditors because, in this way, they get a certain amount of money, and the debtor does not file for bankruptcy, putting the creditors in danger of losing the money they are owed.

Specific organizations help with debt settlement. These companies take a percentage of the sum settled, usually between 15% and 20%, as part of their fees. You may also do it yourself, but you run the risk of not getting a fair deal.

There Are a Few Downsides to This Method

●       Some debt settlement companies might ask you to stop your payments while they negotiate your debt with your creditors. Often, this negotiation takes a lot of time, and during that period, your debt increases due to the late fees.

●       The debt settlement is likely to impact your credit score, causing problems with future loans, employment challenges, and so on.  

Payday Loan Debt Management

A debt management plan offers you a single, lower monthly payment to your creditors in exchange for eliminating your debt. A debt management plan is similar to a consolidation program.

Many organizations provide debt management help to those stuck and struggling to manage their finances.  Credit counselors negotiate with your creditors and help you create a budget that works for you. Rather than making multiple payments each month, you have to make one payment to the organization, which distributes the funds to your creditors. Debt management is beneficial to your credit score because it allows you to pay off your debt quickly. Your repayment plan will also have a positive impact on your credit score.

There Are Certain Drawbacks to This Method

●       The benefits of your debt management plan will be lost if you don’t make your payments on time every month. If you don’t, you might lose out on the benefits that come with it.

●       The majority of creditors are willing to accept reduced monthly payments. However, some creditors may refuse to accept the reduced repayment plan.

Alternatives to Payday Loans

Payday loans look appealing because of how they look on the outside – easy and quick. But what most fail to notice is that they can be vicious, never-ending traps. Payday loans may look like the best option in an emergency. Still, other alternatives are much more favorable than payday loans.

Payday alternative loans (PAL): Payday alternative loans (PALs) are available from credit unions that are active members of the Credit Union Administration. You might use the money from a PAL to avoid or repay a payday loan. Lower-cost PALs provide borrowers with more time to repay a loan than payday loans. A credit union would charge up to $20 for a PAL. PAL sums vary from $200 to $1,000, with a one-to-six-month payment term.

●  Side business: If you have some leisure time, you can earn extra dollars. You could try online tutoring or any kind of freelance job like web design, graphic design, or writing. You can also sell items that you make.

●  A loan from friends and family: A personal loan from your friends and family can help you avoid a high-interest payday loan. You may even be able to get interest-free loans. Whatever the interest rate, get your loan arrangement in writing. This agreement should specify the amount borrowed, the interest rate, the collateral required (if any), the payout duration, along with the payment amounts and due dates. Failure to return a loan of this type will not harm your credit, but it may endanger a friendship or family relationship.


Payday loans are notorious things. With their enticing posters and easy accessibility, they feel like the best thing possible when you’re in a bind. However, if you get into this cycle and cannot manage it properly, getting out of it might be difficult.

Hopefully, the above solutions will help you be debt-free in a less painful manner. However, remaining debt-free is entirely up to you and how you decide to tackle a situation. It’s important to remember that payday loans aren’t your only option, and always be on the lookout for alternatives.

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