Your paycheck is a week away, but you need money — now. A payday loan sounds like a quick solution to an urgent crisis. That’s how the payday loan trap begins. Your next paycheck is shrunk by the loan amount plus interest. You run out of money again before payday. You borrow again. Soon you have to roll the loan over to another period. Your payments may go entirely to interest. The loan principal just sits there, generating more interest. You end up far worse off than when you started.
Don’t let payday loans lead you to financial ruin. Payday loan organizations can help you break free from the high-interest debt trap.
Payday Loan Organizations
About 80% of payday loan borrowers extend their loans at least once, and 12% extend 10 times or more. The average payday loan borrower is in debt for five months and spends $520 in fees on a $375 loan.
If you’re considering a payday loan, stop and look for help. Many payday loan organizations will help you avoid payday loans. It’s easier than helping you escape them!
If you’re already stuck in the trap, these payday loan organizations may be able to help you get out.
Nonprofit Consumer Credit Counseling Agencies
Nonprofit credit counseling agencies can help you avoid or escape the payday loan trap. Credit counselors offer services over the phone, online, and in person. You can find credit counseling services in your area through online searches or by searching the database of accredited credit counselors maintained by the US Department of Justice.
What Credit Counseling Agencies Do
A credit counseling agency will not lend you money or pay your loan. They can help you organize your finances and make paying or avoiding a payday loan easier. They may also be able to connect you to other resources that can provide assistance.
If you contact a credit counselor, you can expect two steps.
- A free consultation. Legitimate credit counseling services will offer a free initial consultation. A counselor will review your income and expenses and help you determine what you can do to get out of financial trouble. Before you start a free consultation be sure to have full financial records ready, including your income, your debts and your recurring expenses.
- A debt management plan. Your counselor may recommend a debt management plan. You will make a single payment to the counseling agency, and they will pay your creditors. They will negotiate with your creditors for better terms. You will pay a fee and you may be asked to close credit card accounts. Be sure you’re clear on the terms before you sign.
Some payday lenders will not negotiate with a credit counseling agency, but the agency is better positioned to negotiate than you are.
How to Choose a Credit Counseling Agency
Some credit counseling agencies — which also may refer to themselves as credit service organizations — may charge excessive or hidden fees, or make unrealistic promises about repairing your credit or settling your debts. Always be alert for debt relief and credit repair scams. The FTC has good advice on choosing a credit counselor.
Here are a few things to look for.
- Accreditation. Reputable credit counseling agencies will usually be accredited by the National Foundation for Credit Counseling (NFCC) or the National Association of Certified Credit Counselors (NACCC).
- Free initial consultation. Any legitimate credit counseling agency will give you a free initial evaluation. If an agency wants you to pay before they’ll talk to you, look for another one.
- Hard sell tactics. Legitimate counselors will explain the pros, cons, and risks clearly and make sure you fully understand them. They will not push you into a decision.
Nonprofit does not mean free: even legitimate counseling agencies will charge for debt management plans and some other services.
Your Bank or Credit Union
Many credit unions offer payday alternative loans, and some local banks do as well. These loans are designed to help customers avoid payday loans. They can also be used to pay off payday loans and replace them with loans at a more affordable interest rate. These may be called salary advance loans, small-dollar loans, signature loans or payday alternative loans.
Talk to a manager and ask. It’s embarrassing to admit that you’re in trouble but it’s better than sinking even deeper into trouble.
Many people use payday loans to pay off other debts or bills. This is almost always a mistake.
Payday loans are usually for a very short term, generally two weeks or less. If you need money to pay rent, utilities, or other bills, talk to the party you owe instead. Explain your situation and make sure that you know that a payday loan is your only alternative to paying late. Many creditors will be willing to give you an extra week or two to pay. And even if they won’t work with you, often the late fee those companies charge will be lower than what you’d pay a payday lender in order to get the money to pay the bill on time. And many companies will allow you to set your own billing date, which you can time to correspond with your paychecks. It will take a month or two for the new billing date to become effective, so it’s best to do this as soon as you start to have signs of trouble.
A word of caution, though: Prioritize your rent payments. You often can get away with paying it a few days late (though you’ll probably rack up a late fee) but don’t push it any later because the fees add up very quickly. For example, in Texas, you will be charged an initial late fee and a separate daily fee for each day your rent payment is late. Plus, you don’t want to have to deal with eviction notices or the extra costs if your landlord starts an eviction process.
Churches and Charity Groups
Religious congregations have taken a leading role in providing assistance to victims of predatory lending. Faith for Just Lending is a national organization of churches that advocates for fair lending practices. They do not provide direct assistance, but they may be able to connect you to groups that do.
Many local churches take a more direct approach, providing low-interest loans or helping to negotiate low-interest loans from local credit unions.
If you belong to a church, ask if your church offers payday loan assistance or can connect you to a group that does. If you don’t, check out organizations like Catholic Charities, the Salvation Army, the National Baptist Convention, the Ecumenical Poverty Initiative, and some of the local churches in your area. Posting on neighborhood apps like NextDoor could help you connect with people who are familiar with local programs that might be able to help.
Federal and State Regulators
The Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and your state’s financial regulatory authorities or state attorney general’s office are closely monitoring the operations of payday lenders. These groups won’t bail you out with loans, but if your lender is violating the law they may be able to take action.
It may not be so easy to determine whether your lender’s actions are illegal. If your lender is making unauthorized withdrawals from your account or treating you abusively, it’s worth getting legal advice. If you can’t afford a lawyer check the American Bar Association’s free legal help page, the Legal Services Corporation, or the US government’s free legal assistance page.
A complaint to a regulatory agency may result in action against the lender, and you may be freed from your debt. If your loan was illegal in the first place, you may not have to pay it.
Your Lender (Ask For an Extended Payment Plan)
It’s hard to think of a payday lender as a payday loan organization of the helpful sort, but lenders in many states are required to offer relief if you ask for it. This usually comes in the form of an extended payment plan, or EPP. These plans are an alternative to rolling over a payday loan. An EPP usually allows you to pay in several installments, often with a lower interest rate.
Many states require payday lenders to offer EPPs. Payday lenders who are members of the Community Financial Services Association of America (CFSA), a national association of payday lenders, are required to offer an EPP.
Payday lenders may not inform you that an EPP is available. You will have to approach them at least one day before your payment is due and ask. You may also wish to find out whether EPPs are required in your state or whether your lender is a CFSA member.
Private Payday Loan Organizations
Many private payday loan organizations help payday loan borrowers. These groups usually operate as debt consolidators. They will identify loans they can help with and negotiate with your lenders. You’ll make a single monthly payment and pay a lower interest rate.
You’ll need to choose your private payday loan organization carefully. Some are just other predatory lenders in disguise, trying to take advantage of your distress. Read any proposed agreement carefully.
Here are a few reputable private payday loan organizations:
DebtHammer can reduce your payday loan load by up to 80%, placing you on a clear, simple, payment plan with a single manageable monthly payment.
You’ll get a free initial consultation. The company will review your loans, identify the ones they can help you with, and offer a monthly payment plan. You can choose whether or not you want to proceed. The company will negotiate with your creditors and work to get you a better deal.
InCharge Debt Solutions
InCharge Debt Solutions is a non-profit organization with an A+ Better Business Bureau rating. They provide credit counseling, consolidation, and other services for individuals facing insurmountable payday loans or credit card debt. They can cut your fees and charges and consolidate multiple bills into one convenient monthly payment.
InCharge provides an unusually wide range of services, including housing counseling, bankruptcy counseling, and relief from other forms of debt.
Real PDL Help
Real PDL Help is a payday loan consolidation company. They will work with your lenders to get you a better deal and replace your blizzard of payments due with a single monthly bill. You’ll get detailed monthly statements that review your progress and freedom from collection calls and direct draws from your checking account.
Real PDL Help also provides a range of educational resources that will help you deal with your lenders on your own.
What is a Payday Loan?
A payday loan is a short-term loan that you repay in a single installment on your next payday. These are small loans that range from $50 to $1,000, but the median amount is $350.
Payday loans are easy to get. The application process is minimal. There’s usually no credit check. All you’ll need is a bank account and proof of income. You will usually need to provide a post-dated check or authorize a draw on your checking account. The loan terms are fairly simple — repayment is expected on your next payday.
This type of loan is dangerous for borrowers. They have very high interest rates. An APR of 400% or above is typical. They may also carry a range of fees. Many payday loan borrowers end up in a cycle of constant payments and never-ending debt, struggling to keep up with the interest.
Payday loan lenders usually don’t report to credit bureaus, but your account will be sent to a collection agency if you can’t pay it. The collection agency will place the account on your credit record.
Payday loans are illegal in some states and restricted in others.
Pros of Payday Loans
- Quick money. Loans are released the same day.
- Easy access. There’s no credit check and approval is simple.
- No credit damage. Late payments aren’t reported to the credit bureaus unless your account goes to a collection agency.
Cons of Payday Loans
- High costs. Interest rates and fees are high.
- Extra costs. Postdated checks and automatic charges may add returned check fees and overdrafts to your costs.
- Complicated agreements. Documents are often designed to be confusing.
- The payday loan trap. Rolling over payday loans can spiral into an uncontrollable debt cycle.
Online Payday Loans
Like every other business, payday lending has moved online.
Online payday lenders may lend directly online or connect you with a storefront lender in your area. Loans may not be available in all states.
Some of these lenders have well-known names, but beware. These loan terms are no better than what’s offered by a local brick-and-mortar lender.
- Check into Cash offers multiple loan products, including payday loans, car title loans, installment loans, and lines of credit. In Texas, they charge an APR of 661.43% on payday loans.
- CashNetUSA offers fast, short-term high interest loans. CashNetUSA’s website says their APRs on payday loans range from 400% to more than 600%, depending on the state where you live.
- Ace Cash Express provides payday loans, installment loans, and title loans. Ace Cash Express doesn’t disclose it’s APRs without completing an application, so stay away. Never commit to a loan without knowing the terms in advance.
Tribal loans are made by payday lenders that partner with Native American tribes and locate on tribal reservations. They operate outside of state laws because these tribes enjoy sovereign immunity.
Tribal loans can usually be paid back in installments over several months. That gives the loans even more time to accumulate interest. Interest rates may be even higher than payday loan rates.
Payday loans and tribal loans should be avoided if at all possible. Make sure you’ve explored all of the options below before you take out one of these loans.
Alternatives to Payday Loans
Newer apps have created some payday loan alternatives that are far more favorable for borrowers. Consider these options.
Cash Advance Apps
Cash advance apps (sometimes also called paycheck advance apps) are budgeting apps that help you organize and track your finances. Some will give you access to your paycheck up to two days early. They will also give short-term cash advances.
- Dave costs $1 a month and will issue cash advances up to $200. Some borrowers have reported receiving their money as quickly as the next business day.
- Earnin lets you draw up to $100 a day on the money you have already earned. You have to get paid through direct deposit to a bank account on a regular schedule. You only need to pay a voluntary tip.
- Chime is an online bank that offers early access to your paycheck and a cash advance function.
In every case, you have to set up the account and establish a record before you use a cash advance. If you need money right now, they won’t help.
Want to know more about payday loan alternatives? Here’s information on nine apps that can help.
Personal loans can be an alternative to payday loans. These are installment loans: you make a fixed payment each month
- You need at least fair credit. Most payday loan borrowers have poor or no credit. Fair credit means a minimum score of about 630.
- Minimum loan amounts are large. Very few personal loan lenders will make loans under $500, the way payday lenders do. Borrowing more than you need is risky.
These issues may make personal loans an unrealistic option for many payday loan borrowers unless you’re looking to consolidate multiple debts.
Bad Credit/No Credit Personal Loans
Some personal loan lenders specialize in making loans to people with fair or even poor credit, or people with no credit score.
- Upstart will lend from $1,000 to $50,000 to borrowers with a credit score of 600 or above. They accept borrowers with no credit score: you will be evaluated based other factors. APRs range from 5.38% to 35.99%.
- One Main Financial will lend from $1500 to $20,000 at APRs of 18% to 35.99%. There’s no minimum credit score. You’ll be evaluated based on other financial records.
- Universal Credit will lend $1,000 to $50,000 to borrowers with credit scores over 560. The APR is 34.99%.
- Oportun will lend from $300 to $10,000 at APRs under 35.99%. They consider your credit score but will look at other factors as well. There’s no minimum score.
- Avant will lend from $2,000 to $35,000 to borrowers with a credit score of 580, in some cases less. APRs are from 9.95% to 35.99%.
Any personal loan can be used for debt consolidation Some personal loans are marketed specifically as debt consolidation loans. Here are some options for people with lower credit scores.
- Upgrade will lend from $1,000 to $50,000 at APRs from 5.94% to 35.47%. They will pay your creditors directly. The minimum credit score is 560.
- Payoff will lend $5,000 to $40,000 at APRs of 5.99% to 24.99%. The minimum credit score is 600.
Borrowers with low credit scores will pay APRs at the higher end of the range. It will still be a small fraction of the interest rate on a payday loan. Watch out for payday loan consolidation scams.
Peer-to-peer lending platforms connect borrowers with private lenders. Some will serve borrowers with credit problems.
- LendingClub handles loans up to $40,000 for borrowers with credit scores above 660. Approved borrowers may receive several offers.
- Peerform will lend from $4,000 to $25,000 to borrowers with credit scores over 660.
- Upstart will lend $1,000 to %50,000 to nborrowers with credit scores over 600.
The Reddit forum r/borrow is a less formal peer-to-peer lending group. You will need a Reddit history of 90 days or more and 1,000 Karma points to request a loan. Because you’re working directly with another Reddit poster, there is some flex in how much you’ll pay in “interest” and if you need an extension.
There are several other ways to avoid or escape the payday loan trap.
- Use Home Equity. If you own a home you may be able to get a home equity loan or home equity line of credit (HELOC). But this comes with some drawbacks: minimum loan amounts may be large, and if you can’t make the payments you could lose your home.
- Use a 401(k) loan. If you have a 401 (k) you can borrow from it. You’ll need to research your employer’s rules, and carefully review your loan agreement so that there are no surprises. Some companies require that the entire loan balance be repaid if you decide to leave the company, or are laid off.
- Financial institutions. Your bank or credit union may offer short-term loans. These may be called payday alternative loans, small dollar loans, signature loans, or other names, or salary advance loans. Most credit unions will only lend to members. Some major banks, like US Bank.
- Student options. If you’re a working student with payday loans, ask the financial aid office about emergency loans from your college or look into federal emergency student loans.
- Your employer. Most employers understand the danger of payday loans and many will work with you to keep you out of the trap.
- Friends or family. Borrowing from friends or family is embarrassing, but it’s better than sinking into the payday loan trap.
- Hustle. Sell things you don’t need. Take on a side job. Work more hours.
These may not be the most attractive options, but almost anything is better than a payday or tribal loan.
Many people who are in the payday loan trap devote all their energy to a vain attempt to pay their loans. That won’t solve the problem. You need to get out of the trap. Payday loan organizations can help. Take the initiative and look for one today!
Many churches help members and non-members with payday loans. One in Texas even bought a credit union to provide alternative loans. Check with churches in your area.
Nonprofit credit counselors will provide free initial consultations. Other programs may require payment. Local churches and charities may provide limited free debt relief.
The federal government will not pay off your payday loan, but there are some government programs that, if you’re qualified, provide food or housing aid, which can help you put money toward debt. If you have tax debt, the IRS Fresh Start Program might help. Some government programs may help forgive some of your student loan debt, freeing up some of your salary for other expenses. And if you work in a medical or science field, the National Institutes of Health offers research grants that offset education costs, potentially saving you some money on student loans.
But if you need immediate assistance with food and utility costs, state and local agencies will be better places to start.
A higher credit score means you’ll pay lower interest rates for many different kinds of loans, from mortgages to auto loans. Pay debts on time. Check your credit report to ensure no errors are dragging down your score. Use secured credit cards or credit-builder loans to build credit. If you have credit cards, keep your balance below 30% of your credit limit. Read more here.