How to Get Out of the Payday Loan Debt Trap[yoast-breadcrumb]
How to Get Out of the Payday Loan Debt Trap
Payday loans can seem like an easy fix when you’re short on cash, but they often create a vicious cycle of debt that’s hard to escape. I’ve been there myself — stuck in the payday loan debt trap, wondering how I’d ever get out.
After finally finding my way to financial freedom, I want to share what I learned with others struggling with payday loans. This article will walk you through the step-by-step process I used to get out of payday loan debt for good.
I’ll be real with you: it wasn’t easy or quick. But if you commit to following these steps — and avoid taking out any new payday loans — you can get back on track financially. Let’s get started!
Step 1: Stop the Bleeding
The first thing you need to do is stop the cycle of borrowing. As long as you keep taking out new payday loans to pay off old ones, you’ll keep sinking deeper into debt.
So your first step is to commit to not taking out any new payday loans, no matter how desperate you feel. Cut up any debit cards linked to your payday loan accounts if that helps remove the temptation.
You’ll also need to stop the automatic debits the payday lender makes from your bank account for loan payments. You can do this by contacting your bank and revoking authorization for automatic withdrawals from the payday lender.
Some states also allow you to revoke authorization for electronic withdrawals — check with your state laws. Just know that stopping payments doesn’t erase what you owe; it just buys you some time.
Step 2: Evaluate Your Full Financial Situation
Now it’s time to get a complete picture of where you stand financially. Make a list of all your debts, including:
- Outstanding payday loans (remaining balance + fees)
- Credit card balances
- Medical bills
- Personal loans
- Past-due utilities
- Car loan
Also list your income sources and assets, like:
- Government benefits
- Child support
- Savings accounts
- Retirement accounts
This full financial picture will help you make a plan to start prioritizing and paying down debts.
Step 3: Contact Payday Lenders
Now it’s time to contact your payday lenders directly and explain your situation. Be honest and let them know you’re trapped in payday loan debt and unable to continue payments as scheduled.
Ask if they can offer an extended payment plan with lower payments over time, rather than demanding lump sum payoff. Be persistent and call multiple times if needed — the squeaky wheel gets the grease.
If you can get on an affordable payment plan, great! Be sure to get the details in writing before making any payments. If they refuse, move on to assessing other options.
Step 4: Prioritize Debts
Based on your full financial picture, make a list of your debts organized by priority:
- Priority 1: Mortgage/rent, utilities, food
- Priority 2: Secured debts like car loan
- Priority 3: Payday loans, credit cards, medical bills
Focus on paying the minimums on Priority 1 and 2 debts to keep necessities covered and assets protected.
Then put any extra money towards Priority 3 debts using the “debt snowball” method. This means paying minimums on all debts except the one with the smallest balance — put as much money as possible towards paying that one off first.
Once that’s paid off, roll that payment amount into the next smallest debt. Knocking out small balances first gives you quick wins that motivate you to keep going.
Step 5: Increase Income
To get out of debt, you need more money coming in. Here are some options to boost income:
- Ask for overtime hours or a raise at work
- Sell unused items on Craigslist or Facebook
- Drive for a rideshare service like Uber or Lyft
- Get a part-time job — bartending and retail often hire quickly
Even an extra $200-300 per month can make a big difference when you’re trying to pay off payday loans.
Step 6: Lower Expenses
Cutting expenses frees up more money to pay off debt each month. Some ideas:
- Downgrade to a cheaper cell phone plan
- Cancel subscriptions you don’t use
- Eat out less, cook at home more
- Turn down thermostat to lower utility bills
- Renegotiate monthly bills like cable and internet
Every dollar counts — scrutinize expenses and trim wherever you can. Those small daily savings add up.
Step 7: Consider Debt Consolidation
If you have good credit, a debt consolidation loan allows you to roll multiple high-interest debts into one lower fixed rate loan, with just one payment. This can really simplify managing payments.
Avoid shady debt relief companies — instead talk to your bank or credit union about debt consolidation options. Make sure to read the fine print so you understand fees.
Debt consolidation can offer relief, but it’s still debt — so commit to closing paid accounts and sticking to your repayment plan.
Step 8: Rebuild Emergency Savings
A key step to avoid ending up back in payday loan debt is to build up emergency savings.Aim to save $500-1000 in a dedicated emergency fund.
This cushion means you won’t have to resort to payday loans the next time an unexpected expense comes up. Once you’re out of debt, commit to adding a little each paycheck until you have 3-6 months of expenses saved.
Getting out of payday loan debt takes time, commitment, and personal accountability. But thousands have done it — and you can too! Be patient with the process, celebrate small wins, and focus on your end goal of financial freedom.
You’ve got this! Now get started on step 1…
Here are some great resources with more tips for getting out of payday loan debt: