How to Get Out of the Payday Loan Cycle

A payday loan can be a quick and easy way to get extra money when you need it. However, if you can’t pay back your loan in full (plus interest/fees) by the time you get your next paycheck, you can find yourself in a bigger financial bind than you were before. 

According to a study by the Pew Charitable Trusts, only 14% of those who take out a payday loan can repay it in full by their next payday. If you can’t pay your loan in full, your lender may allow you to simply pay the fees and roll your loan over for another 2 weeks. This is called “churning.” The average payday loan churns 8 times in 5 months. Not only are you paying extra fees each-and-every time you “churn” a loan, but you are also increasing the chances that you will need to take out additional payday loans elsewhere in-order-to keep up with the fees, as well as all other bills you had, to begin with. When this happens, you can quickly find yourself trapped in a very stressful and expensive cycle of debt. 

If you don’t pay back a payday loan, it may result in collection activities that could end in civil court. You may have to pay a bunch of court costs (as well as fees and interest), have your wages garnished, or even a lien put on your property. As hopeless as your situation may seem, however, there are things you can do to get out of the payday loan cycle. 

Consider these steps:

1. You can’t get out of payday debt if you keep adding to it, so, whatever you do, do not take out another payday loan.
2. The faster you pay off the debt, the less you’ll have to pay in fees. Find other ways to come up with extra money. Consider selling unused or unwanted items, take an extra job, and/or see if you can borrow any money you can from family or friends.
3. Ask about an Extended Payment Plan. If a payday loan lender is a member of the Consumer Financial Services Association of America, you may be able to enter-into-an Extended Payment Plan (EPP). This plan will give you extra time to pay your loan — usually over your next 4 pay periods — without being subject to any additional interest/fees. As-long-as you pay per the agreement, you won’t be turned over to collections. (Note: To qualify for an EPP, you must apply for one on the last business day before the loan is due, feel free to visit (http://www.ncsl.org/research/financial-services-and-commerce/payday-lending-state-statutes.aspx) to see if EPP’s are mandated according to your state’s laws.)
4. Consult a credit counseling service in your area. If you can’t obtain an EPP for one (or more) of your payday loans, a credit counseling service might be able to help you to restructure some of your payday loan debt. To find a reputable credit counseling service in your area, please visit https://www.justice.gov/ust/credit-counseling-debtor-education-information

Getting out of the payday loan cycle can be difficult sometimes, but it’s doable. Once you’ve gotten out, start building an emergency fund so that you can avoid falling into a similar trap in the future.