Escape from Payday Loans

How to Break Free From Payday Loan Debt Cycle

Have you ever found yourself entrapped in the vicious cycle of payday loans, looking for a viable exit strategy? Are you fed up with the same old advice that suggests prioritizing high-interest loans first? The complexity of payday loan debt is unique, as the repayments can consume your entire paycheck before you know it. This calls for a unique strategy, which we will outline in this guide, drawing from extensive research, personal experience, and insights from multiple borrowers who have successfully escaped from payday loans.

1. Taking the First Steps: Regain Control

1.1 Halt Automatic Payments

Chances are, you might have authorized your payday loan company to automatically deduct payments from your bank account. The first step to escape from payday loans is to regain control of your account. You can do this by sending a revocation of authorization for electronic debits to your payday loan company and confirming it with a phone call.

1.2 Communicate with Your Lender

Open communication is crucial. Politely inform your lender that you are struggling with debt and exploring various options. Maintain this line of communication throughout your journey to debt freedom.

1.3 Curb Unnecessary Spending

Effective management of your finances also includes cutting back on nonessential spending. This is crucial as you work towards financial stability.

2. Negotiation: Rethinking Repayment Terms

2.1 Reach Out to Your Lender

While dealing with payday lenders may be challenging, remember they also want their money back. With control over your bank account, you’re now in a position to negotiate better repayment terms. Request a hardship plan or an “extended payment plan” (EPP).

2.2 Prepare for Negotiation

Before embarking on negotiations, you should:

 

  • Understand the total number of loans you have.
  • Know how much you’ve paid and how much you still owe.
  • Verify if your lender is licensed to lend in your province.
  • Understand the interest rate and its compliance with provincial regulations.
  • Determine if payday loans are legal in your province.

 

2.3 DIY Debt Settlement

DIY debt settlement involves two strategies:

 

  • Consolidate all your payday debts into a single larger loan, preferably with a lower interest rate.
  • Allow yourself to default and negotiate a settlement with each lender individually.

 

Depending on your situation, you can blend both methods.

3. Debt Repayment Strategies: Snowball vs. Avalanche

3.1 The Snowball Method

Start by making the minimum payment on all your debts, then put whatever is left towards your smallest payday debt. Once the smallest debt is paid off, move on to the next smallest, and so on. This is known as the snowball method.

3.2 The Debt Avalanche Method

The debt avalanche method involves paying off your debts with the highest interest rate first. While this strategy can be effective, it may not offer the same morale boost as the snowball method.

4. Using Lower-Interest Debt to Pay Off Higher-Interest Debt

If a personal loan isn’t an option, consider other alternatives like installment loans or debt consolidation loans if your credit score is above 600.

5. Abstain from More Loans

At this point, you must stop borrowing additional short-term loans, including payday loans and title loans. Stick to your budget while you get your debt under control.

6. Embrace Budgeting

Establishing a budget is crucial. It helps you understand your essential and nonessential expenses, allowing you to manage your money effectively.

7. Maximize Payments Towards Your Debt

Prioritize your debts from smallest to largest. Schedule payments starting from the largest loan and set up autopay for the minimum payment each month.

8. Seek Professional Help if Needed

If you’re struggling to handle these steps by yourself, consider seeking help from a professional credit counselor or a debt settlement company.

9. Bankruptcy: The Last Resort

Filing for bankruptcy is a drastic measure, but it could offer the fresh start you need if you’re overwhelmed with debt.

10. Future Steps: Preventing Payday Loan Debt

10.1 Repair Your Credit

Poor credit is often the reason people resort to payday loans. Sign up for programs that help you repair your credit score.

10.2 Adjust Your Lifestyle and Spending Habits

Invest time in personal finance education. This will help you take control of your money and understand where you can reduce expenses to build savings.

Remember, escaping from payday loans is a challenging but achievable task. It requires discipline, effective communication, negotiation skills, and above all, a determination to regain control of your financial life.

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