15 Ways to Get Out of Payday Loan Debt for Good

Getting out of payday debt is tough but possible. Here’s how to get out of a payday loan nightmare.

If it seems like your payday debt never goes away even as you keep paying more and more each payday, you’re probably stuck in what’s known as the “payday loan trap” — a cycle of debt that’s almost impossible to escape.

If you’re one of the 12 million Americans who have taken out a payday loan this year, you’re not alone. Here are a few steps you can take to help escape this trap.

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Key points

• The most important step is to completely stop using payday loans
• Debt consolidation or debt settlement can help
• Try a cash advance app or Payday Alternative Loan instead
• Carefully examine your spending to get it under control

How to Get Out of Payday Loan Debt

According to statistics from the Consumer Financial Protection Bureau (CFPB) and research from the Pew Charitable Trust, the average annual percentage interest rate on a payday loan is 396%, with the average borrower spending $520 in interest and additional fees alone to borrow $375.

By nature, these loans tend to trap well-intentioned borrowers into a crippling cycle of debt. Yet the 14,000+ storefront payday lenders and endless online lenders rake in $12 billion in fees yearly.

Here are 15 ways to get your debt under control now.

1. Try Payday Loan Consolidation or a Debt Settlement Program

Consolidation programs are designed to take all your payday loans and put them into a single payment plan. This can be the most effective option for reducing your payday loan debt, but many scams exist. We highly recommend DebtHammer, which specializes exclusively in payday loan consolidation and only takes on clients they’re entirely sure they can help.

There are two types of payday loan consolidation. The first is an actual debt consolidation loan. In this case, a lender will give you a new loan at a new interest rate, which you can use to pay off higher-interest short-term loans. If you do this route, the U.S. government recommends talking to a credit counselor so that you know what you’re getting into. 

Payday loan consolidation programs — also called debt relief, debt settlement or debt consolidation programs — are a bit of a different beast. In this case, a third party will take all your loans (and the responsibility of repaying them) and charge you a flat monthly payment. They will help you stop lenders from automatically drafting from your checking account (which will prevent overdraft fees) and negotiate directly with the lenders to devise a repayment plan that works. Generally speaking, the total amount you will pay will be a fraction of what you owe the payday lenders. 

The average debt settlement client ends up repaying 80% of the total amount they owe on average after the debt settlement company’s fees.

READ MORE: Is debt settlement the fastest way to get out of debt?

2. Avoid Taking on New Payday Loans

This is essential. Do not take on new payday loans! 

Payday loan lenders are considered so predatory that several state laws prohibit payday loans. They trap payday loan borrowers in a cycle of debt that can be extremely difficult to escape.

Do whatever you need to do. Save money, work overtime, borrow from friends and talk to a credit counselor, but do not fall back into the trap. The short-term relief is not worth the long-term debt you’re trying to pay off.

READ MORE: States where payday loans are illegal

3. Get a Payday Alternative Loan (PAL) from a Credit Union

Federal credit unions are financial institutions that tend to be smaller and less profit-oriented since they don’t have shareholders. They often offer “Payday Alternative Loans” (PALs).

PALs are:

• Issued to borrowers who have been credit union members for at least one month.
• Granted in amounts between $200 and $2,000.
• Affordable, with a maximum annual percentage rate of 28% and an application fee of no more than $20, reflecting the actual processing cost.
• Repaid fully in less than a year; no rollovers allowed.
• Provided to borrowers one at a time; borrowers may not receive more than three PALs within six months.

New National Credit Union Administration (NCUA) data show that credit unions issued $227 million in PALs in 2022, a 30% increase over the previous record of $174 million that was set in 2019.

READ MORE: What is a Payday Alternative Loan?

4. Sign up for a Cash Advance App

These apps, like Albert or Dave, offer small loans but don’t charge interest or fees aside from — in some cases — a small monthly fee. They usually only loan small amounts, ranging from $20 to $250, but that’s in line with a payday loan. The advances are then repaid from the borrowers’ next paycheck. Cash advance apps make money by asking borrowers to pay tips, but the tip is optional and can be set to whatever amount you’re willing to pay.

READ MORE: Best cash advance apps

5. Ask for Extended Payment Plans

Payday lenders may not be your friend, but they want their money back. They may offer reduced terms or interest rates if you call them and tell them you can’t pay. Try not to speak to their debt collectors and instead, someone who is a supervisor.   

You can also ask if they offer extended payment plans (EPP). They may not, but it doesn’t hurt to ask. Be sure to ask a few people when you inquire because payday sales reps won’t always be honest.

Pro tip: If your lender is a Community Financial Services Association of America (CFSA) member, the chances that they offer extended payment plans is relatively high. Be sure to ask before your loan’s due date — last business day at the latest.

Before you do sign a repayment plan, read and understand all of the terms. There’s no such thing as a free lunch and what sounds like a better deal may have hidden costs, like higher interest rates.

READ MORE: Payday loan extended payment plans

6. Prioritize High-Interest Loans First

Begin by laying out all of your loans. Take the time to read each loan agreement to understand 

You should always try and pay back your highest-interest loans first. Because of how interest payments work, the more you owe, the faster the interest charges mount.

Pro tip: If you have non-payday loans such as credit card loans, they should usually take a backseat as they have a significantly lower interest rate. Credit card debt is another problem, but it’s much lower-interest debt than a payday loan. 

It may take quite a bit of digging to find out what APRs you are paying with each loan, but it is well worth it to understand which of these have the highest interest rate so that you can prioritize them.

READ MORE: Payday loan consolidation: How to get debt relief that works

7. See If You Can Qualify for a Personal Loan

Payday loans are just one type of loan. There are many other options out there.

Second mortgages, home equity lines of credit (HELOCs), credit cards, and other personal loans are designed to pay down larger loans.

If you already have a credit card, most credit card companies offer quick cash advances. Though these aren’t exactly an inexpensive way to borrow, they’re far cheaper than payday loans.

Pro tip: If you have good credit, you can try applying for a balance transfer credit card. For most of these, you’ll need some credit history — probably a 580 credit score at a minimum.  Check your credit report from one of the leading credit bureaus — Experian, Equifax or TransUnion first — many services such as Credit Karma offer this for free.

READ MORE: Best personal loans for debt consolidation

8. Look into Nonprofit Credit Counseling

Managing your money wisely isn’t easy, and the risks of payday loans are difficult to comprehend. A certified credit counselor can help make sense of all the fine print and help you create a plan to get out of the debt cycle.   

However, if you’re in payday debt, you’re probably not in a position to shell out a bunch of cash to a credit counseling agency. Fortunately, several nonprofit credit counseling agencies offer free debt counseling and financial planning services.

Many military bases, credit unions, local governments and universities offer credit counseling programs. It can’t hurt to call around to see what options are available to you.

These typically won’t be a silver bullet for your financial situation. But a trained counselor can sit down with you, help you understand your financial situation, and set up a budget to help you get out of debt. The hard work is sticking to that budget.

Pro tip: Be very careful of companies masquerading as nonprofit credit counselors. This world is full of scam artists. Do your homework to make sure that there is a real organization behind the offering. If something sounds too good to be true, it probably is.

READ MORE: Best credit counseling agencies and debt relief companies

For more information about choosing a credit counselor, visit this article by the Federal Trade Commission (FTC). 

READ MORE: Debt settlement vs. debt management

9. Ask Friends and Family for Money

One option for getting money to pay off your loans is to ask your friends, family, and community.  It can be extremely humbling to do this, but a no-interest loan from a friend can go a long way in helping you get out of the payday loan trap.

Many churches, mosques and synagogues have support systems where members donate anonymously to help other members through tough financial situations. 

READ MORE: Need help paying your electric bill?

10. Ask for a Pay Advance

If you have a good relationship and a strong history with your employer, asking for an advance can go a long way. Many employers will offer pay advances for employees who have proven themselves.  

Some companies even participate in “earned wage access” platforms, which allow you to access your pay as you’ve earned it without having to have an awkward conversation asking for help.

Pro tip: Be honest about your situation. Help your employer understand that the sooner you get paid, the less interest and fees you have to pay. Remind your supervisor that the less stressed you are, the better you can do on the job.

Consider offering to put in extra hours, which will build goodwill and make you more money (especially if you get paid overtime).

11. Work Overtime

If you’re an hourly worker in the United States, you are entitled to overtime pay when you work over the standard workweek. Typically this means that you get 1.5 times your hourly rate for every hour worked over the normal workweek, usually about 40 hours.

You are making more, and you’re also making more per hour, which adds up fast.  

12. Do Side Jobs for Extra Cash

There is no shortage of side jobs in today’s gig economy. Anybody can make a few extra bucks driving for Uber, walking dogs for Wag, or delivering food for Doordash. If you have the extra time, use it.

READ MORE: Easy ways to earn $500 fast

13: Learn from Others’ Mistakes: Payday Loan Nightmares

There are thousands of stories from people whose lives were upended by payday loans. Learn from their mistakes, and if you have no option other than a payday loan, make sure you make your payments as scheduled. Don’t expect a payday lender to show any sympathy if you can’t repay the loan as scheduled.

Laurie’s story: After successfully paying off two short-term loans, she took out a third with the intention of paying it back right away. Unfortunately, another financial issue came up and she was unable to repay it immediately. Payments ended up totaling $220 biweekly and she was told she would owe a total of $4,400 to repay a $1600 loan.

Shelly’s story: One lender deposited $600 into Shelly’s parents’ account without them asking. Since the m money was deposited — while her mother was in hospice — the lender was electronically withdrawing $152.55 twice a month. This means that for a $600 loan they will pay $3,203.55, for a loan they never requested.

Brandy’s story: When Brandy’s father passed away, she was distracted with funeral arrangements and not thinking about her payday loan. Her payment was two days late and she was charged an extra $300 in fees. When she told the lender why she was late with the payment, they just told her that her loan agreement required payment by a set date. “They had no care or sympathy that I had a tragedy in my life and they just wanted extra fees,” she said.

14. Start an Emergency Fund

Even a small emergency fund can be a significant first step toward ditching payday loans for good. Even just $100 set aside can help if you need an emergency car repair or have a financial setback.

READ MORE: Easy ways to save money around your home

15. Learn From the Experts

Contrary to the claims of many other money-advice sites, personal finance is a complex subject. There are dozens of problems to keep track of, and the stakes are as high as can be. It’s also deeply emotional, and many of us inherit baggage about money from our parents and environment during childhood.

“Single-payment payday loans are unaffordable and harmful for most borrowers,” said Alex Horowitz, an analyst for the Pew Charitable Trust, in a published report. “The repayment periods are too short, the required payments are too large, and the annual percentage rates (APRs) are ten times higher than traditional interest rate limits set by states.”

The proof is in the numbers. Americans consistently fail to reach their financial goals. The average citizen carries $21,800 in non-mortgage debt and saves just 4.3% of their income, according to data from the Bureau of Economic Analysis. Studies show that 72% of Americans feel stressed and anxious about their finances.

It shouldn’t be a surprise. The American educational system has historically done a poor job of helping people understand how to manage money. Many schools don’t offer classes on budgeting, taxes, or managing credit. Many Americans don’t understand why a FICO score is important.

It sets all but the most privileged up to fail. 

Taking the time to remedy the gap in your education will protect you from the pitfalls of personal finance.

READ MORE: Got $50,000 in debt? Here’s how to pay it off

The Bottom Line

Getting out of the payday debt trap is not easy, but it is the first step to ensuring a future of financial freedom.  Once payday loans are no longer hanging over your head, you’ll feel better and have the freedom to begin planning the financial future you deserve.  Being debt-free with money in your bank account is worth the hard work.

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