How to Get Out of the Payday Loan Cycle for Good | DebtShift

You borrowed $375 to get to payday. Two weeks later it costs $56.25 just to keep it going, and you still owe the $375.

Map out every debt you owe with the free AI Debt Payoff Planner, then see our US debt relief guide for the full list of options.

The arithmetic of the cycle

Experian puts a typical payday charge at $15 per $100 borrowed, due in 2 to 4 weeks (Experian). On $375 that is $56.25 every two weeks. Worked out as a yearly rate, that is about 391% APR (annual percentage rate, the yearly cost of borrowing).

Illustrative: $375 loan, $15 per $100, rolled over every 14 days. Fee and APR calculated in code. Check your own loan agreement for the real numbers.

This is not rare. The CFPB reported that more than 80% of payday loans were rolled over or renewed within 14 days, in a study of more than 12 million storefront loans (CFPB). That study is from March 2014, so use it as background, not as today’s figure.

Exit ramps, cheapest first

1. An extended payment plan. Many states require lenders to offer one, though it depends on your state and lender (Experian). Ask before the due date. It can be the cheapest route, so start here.

2. A credit union payday alternative loan (PAL). Experian lists PAL I at $200 to $1,000 over 1 to 6 months, with a one-month wait after joining, and PAL II at up to $2,000 over 1 to 12 months with no wait. Both are capped at 28% APR with an application fee capped at $20 (Experian). On the same $375, borrowed for 4 months at 28%, the interest would be about $22, versus $506 in rollover fees above. Credit checks may still apply, as sources conflict.

3. A personal loan or consolidation. Experian’s lender table shows personal loan rates of roughly 5.96% to 35.99%, with a credit check (Experian). With weaker credit, read what bad-credit consolidation really costs first.

4. A nonprofit debt management plan. A counselor sets up one payment and may negotiate lower rates or fees, but payday loans aren’t always eligible and fees apply (Experian). Free counseling is available through NFCC.

Stopping automatic withdrawals

If the lender is about to empty your account before rent, the CFPB says to do three things: tell the lender you’ve withdrawn permission, tell your bank you’ve revoked authorization, and place a stop payment order at least three business days before the payment is due. The bank may want it in writing within 14 days and often charges a fee. It does not cancel the loan (CFPB). Do this only after you have a plan to deal with the lender, or they may just escalate to collections.

Report any debit taken after you revoked permission to your bank right away. The CFPB also takes complaints at (855) 411-2372.

If you’ve already missed payments

Default can mean collections, a lawsuit and garnishment (Experian). The steps are the same as any other unsecured loan, which we cover in what happens if you stop paying a personal loan.

What people usually ask next

Will paying a payday loan late hurt my credit?

Experian says applying doesn’t involve a credit check and on-time payments aren’t reported to the bureaus. But if the loan defaults it can go to collections and badly hurt your scores, and lenders may sue (Experian).

Can I just close my bank account?

That is risky, and it won’t cancel the debt. Revoke the lender’s permission to take money and talk to the lender first (CFPB).

What is an extended payment plan?

Experian says many states require payday lenders to offer extended payment plans, but availability depends on your state and lender (Experian). Ask before your due date, and get the terms in writing.

Can a payday lender take money from my account whenever it wants?

Only with your permission, and you can withdraw it. The CFPB says tell the lender and your bank you have revoked authorization, and place a stop payment order at least three business days before the next payment is due. Banks often charge a fee, and you still owe the loan (CFPB).

What if I owe payday loans and other debts too?

Look at the whole picture. Experian notes a debt management plan from a nonprofit counselor can sometimes help but payday loans aren’t always eligible (Experian). Compare options in our consolidation guide and the free Debt Consolidation Calculator.

Can they sue me over a payday loan?

Yes, lenders may sue if you default, and a judgment can lead to garnishment (Experian). Never ignore court papers. See our being sued guide.

Worth reading next

• What Happens If You Stop Paying a Personal Loan US

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