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How To Restructure Payday Loan Debt When Funds Are Low

How To Restructure Payday Loan Debt When Funds Are Low

Dealing with payday loan debt can be really stressful, especially when money is tight. Those super high interest rates pile up fast, and it can feel impossible to get out from under all that debt. But there are options out there to restructure your payday loans and make them more manageable. This article has some practical tips to help you get started.

Understand Your Payday Loans

The first step is getting a handle on exactly what you owe. Log into your online account with each payday lender (or pull out your paperwork if you have it) and review all your loans. Make a list with key details:

  • Original loan amount
  • Interest rate
  • Total owed
  • Minimum monthly payment
  • Due date

This overview will help you see just how much you owe across all your loans. You can also calculate the crazy high APR, which is likely over 400%![1] With all the info in one place, you can start figuring out next steps.

Ask Lenders About Payment Plans

One option is asking your lender about an extended payment plan.[2] This stretches out your loan balance over a longer period, usually in installments over the next few months. This lowers the monthly payments to something more affordable based on your budget.

Many states actually require payday lenders to offer payment plans up to 90 or 180 days. And the good news—these payment plans come with no extra fees attached! It gives you time to pay back the debt without getting hit with more charges.

So reach out to your lenders and explain your situation—that you can’t afford the full balloon payment but want to pay back the loan. Ask what extended payment plans they can offer and how to get signed up. This can provide some immediate relief.

Apply for an Installment Loan

Another option is consolidating your payday loans into an installment loan. This basically rolls all your different payday loans into one larger loan with a fixed monthly payment spread out over a set repayment term.[3]

The benefits are getting out of the payday loan debt trap and having predictable loan payments each month. Interest rates are high but likely lower than a payday loan. Loan terms usually range from 6 to 60 months.

Banks, credit unions, and online lenders offer installment loans. Shop around to compare interest rates and loan terms. Key things to ask:

  • Interest rate
  • Origination fee
  • Payment amount and frequency
  • Total repayment period
  • Prepayment penalties

Aim for the lowest rate possible and shortest term to pay it off quickly. If you have fair credit or better, you should qualify for an online installment loan. Getting approved is quicker than a traditional bank.

Use a Debt Management Plan

If you have high-interest debt across multiple credit cards and loans, a debt management plan (DMP) could help. This is offered through nonprofit credit counseling agencies. It negotiates with your creditors to reduce interest rates and create one monthly payment.[4]

The agency works on your behalf to get concessions from creditors. This helps simplify payments and lower interest costs. They usually request that creditors:

  • Reduce rates to 0-6%
  • Waive late fees
  • Stop over limit fees

In exchange, you agree to close credit card accounts and pay off debt through the DMP over 3-5 years. This helps get credit card debt under control. Just beware of high startup and monthly fees charged by some agencies.

Explore Debt Consolidation Loans

Another option is taking out a debt consolidation loan to pay off your existing payday loans. This combines multiple debts into one new loan, ideally with a lower monthly payment.[5]

Banks, credit unions, and online lenders offer debt consolidation loans. A home equity loan or a 401k loan lets you borrow against the equity in your home or the value of retirement savings. This can provide lower interest rates to help replace high-rate debt.

The goal is simplifying multiple monthly payments into one and saving money on interest. Be cautious of extending loan terms though, which costs more over the long run. Do the math carefully on total interest paid.

Shift Gears with a Balance Transfer Credit Card

Opening a balance transfer credit card is another strategy to reduce high-interest debt payments. This lets you shift balances from existing credit cards over to a new card with a 0% intro APR for 12-21 months.[6]

Make sure your credit score qualifies for a balance transfer card. During the intro 0% interest period, all your payments go toward paying off the principal debt. This gives breathing room to pay down balances faster without racking up new interest charges.

Just be sure to pay off the full balance before the intro period ends. Otherwise, any remaining balance gets hit with a high standard purchase rate. Read the fine print closely and watch out for balance transfer fees.

Reach Out to Charities

If you’re really struggling with payday loan payments, charities and churches in your area may be able to help. Organizations like the Salvation Army have resources for people facing financial hardship.[7]

Let them know your situation with payday loan debt piling up and inability to make ends meet. See if they can offer any grants, loans, or financial guidance. This depends on funds availability and eligibility criteria, but it’s worth an ask.

Food banks are another local resource when money is extremely tight. Getting some basic needs covered frees up limited funds toward paying off debt. Every little bit helps during financial crisis.

Speak to a Nonprofit Credit Counselor

Connecting with a nonprofit credit counseling agency provides personalized guidance on dealing with debt. Counselors help assess your full financial situation, create a household budget, and offer advice specific to improving credit and getting out of debt.[8]

Many agencies provide free consultations and financial education workshops. They can help navigate options like:

  • Managing collection calls
  • Prioritizing payments
  • Reducing interest rates
  • Consolidating credit card balances
  • Creating payment plans

This professional assistance makes tackling debt feel less stressful and overwhelming. It helps build financial skills and confidence.

Explore Payday Loan Forgiveness Programs

A few credit unions and churches have special loan programs that help borrowers get out of payday debt traps. Loan funds provide financing to pay off existing payday loan balances in full at lower affordable interest rates.[9]

The focus is offering non-predatory lending to give borrowers a fresh start. These payday loan forgiveness programs have eligibility requirements and a formal application process. Check their websites for details and how to apply.

Speak to an Attorney

If you feel trapped in an endless cycle of payday loan debt, consider legal help. Consumer protection attorneys assist people who have been victims of predatory lending tactics and harassment.[10]

They help deal with issues like:

  • Illegal high fees or interest rates
  • Improper collections practices
  • Getting inaccurately sued for debts
  • Identity theft

An attorney sends formal letters to lenders disputing debts and outlining violations. They also defend clients if lenders take legal action over unpaid debts. These lawyers provide expert guidance on consumer rights.

File Bankruptcy as a Last Resort

If your financial situation is truly dire with debts spiraling out of control, bankruptcy may be an option. This legal process gets rid of certain outstanding debts under court protection. The two main consumer bankruptcy chapters are:[11]

Chapter 7: Liquidates assets to pay back creditors, then discharges remaining debts like credit cards, medical bills, and personal loans. This provides a fresh start.

Chapter 13: Sets up 3-5 year repayment plan to pay back debt over time based on income. This helps catch up on mortgages, car loans, etc.

Bankruptcy damages credit scores for years and has long-term financial impacts. But it immediately stops collections calls, lawsuits, garnishments, and foreclosures. An attorney guides through the complex filing process and court procedures.

Don’t Lose Hope!

Restructuring overwhelming payday loan debt takes time and effort, but staying positive is key. There are always options, even when funds are frighteningly low. Take it one step at a time, be persistent, and don’t be afraid to ask for help. Stay encouraged that each little payment made is progress!


How to Report Payday Loan Fraud

Payday Loan Laws By State

Budgeting Tips When Living Paycheck to Paycheck

Sample Letter to Dispute Debts and Stop Collections Calls

I hope this overview gives some solid tips on tackling payday loan debt when money is extremely tight. Please let me know if you have any other questions!

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