Payday loans can be a lifesaver if you find yourself in a difficult financial situation. While the interest rates can be higher than the rates banks offer, there are times in life when you need cash urgently or on bad credit. As long as you don’t default on loan terms, a payday loan can get you out of a sticky situation in the short term. However, once you get a payday loan, it’s important to immediately start paying it off as per the loan terms.
Should you find yourself struggling to repay your payday loans and the fees keep piling up, it’s time to start on a serious loan payment plan. If you don’t start now, your payday loans will start spiralling out of control.
Here are the 7 best tips for how to pay off payday loans on time and avoid late payment penalties:
1. Consolidate Your Payday Loans
With this option, you get to consolidate all your payday loans into one payment plan. One option is to apply for a debt consolidation loan at a new interest rate. You can then use the new loan to pay off other high-interest short-term loans. Before you apply for this loan, consider seeking the advice of a credit counsellor for advice on whether you should proceed.
The other option is to apply for payday loan consolidation. Also known as debt settlement or debt relief, this option is a bit complicated. Here, a third party inherits all your loans, together with the onerous responsibility of repaying them. However, they will charge a fixed monthly fee for this service. They negotiate with your lenders for a payment plan that works in your favour. In most cases, you will end up paying them less than you would your payday lenders.
2. Give High-interest Loans First Priority
A good strategy to pay off payday loans is to prioritize high-interest loans first. Start by examining your loans to understand each loan agreement. It is smart to begin repaying your most expensive loans first. This is because interest works incrementally. Start by paying off loans with the highest interest rates and gradually work towards those with lower interest rates.
The beauty of this strategy is that loans with high annual percentage rates (APRs) also have shorter repayment terms, which means you will soon have more funds to pay the remaining loans even faster.
3. Request an Extended Payment Plan
Your payday lenders must recover their money. It is always in their best interest to work with you to get their money back, even if it means renegotiating the payment terms with you. For this reason, do not hesitate to call and request a reduced interest rate or better terms.
Enquire about whether they offer EPPs (Extended Payment Plans). Remember to place your request before the last business day to avoid being time-barred.
Also, do your due diligence before signing and understand the repayment terms to avoid paying high interest rates.
4. Consider Getting Personal Loans
Consider getting other types of personal loans that can be used to pay your payday loans. You may, however, be disadvantaged if you have bad credit because this can make it difficult to get a personal loan. Most lenders require a healthy credit history and a minimum credit score of 580. If you have decent credit, though, this is an option to consider.
5. Get an Alternative Payday Loan
Credit unions don’t have shareholders. They are small and less profit-oriented. They offer alternative payday loans offered to credit union members as long as their membership is at least one month old. Qualifying amounts range from $200 to $1,000.
These loans can attract up to $20 application fees and a yearly interest rate of 28%. They are to be settled in full within six months with no provision for rollovers. The caveat, however, is that borrowers can only get a maximum of three loans in any six-month cycle. While these loans are not very popular, they are offered by some credit unions, so check around if you’re interested in this option.
6. Consider Non-profit Credit Counselling
Financing is a tough call. You want to be certain you’re making the right decision when applying for a loan. A credit counsellor is well-versed in all matters financing. They understand the pitfalls in financing and can therefore give you expert advice on which option is best suited for you. They can offer valuable knowledge that can help you get out of a debt cycle.
Since you are most likely deep in debt, you may not be in a position to afford a counsellor. Thankfully, there are several pro bono financial planning and debt counsellors to choose from. While they are not a cure-all solution for your financial woes, they can at least help you understand where you are in the debt cycle and what your options are.
7. Ask Family and Friends to Help
There’s always the option of calling on friends and family to help you pay off your loans. As much as you may not feel comfortable disclosing to close family members and friends that you’re in financial distress, this is a good route to take. A family member or a close friend may not charge you interest, which is a critically huge step in escaping the debt trap.