What to Do if You Can't Pay Your Payday Loan
Need Help With Payday Loans?
This article will help you find relief from payday loans and escape the trap of taking out yet another loan. First, know that you’re not alone. According to a survey taken by the Pew Charitable Trusts, over 12 million people use payday loans annually, borrowing a total of $7 billion! While that might be good for lenders, it’s not so good for borrowers, who find themselves unable to pay back their loans because of the high interest rates.
If that describes you, then read on in order to find out how to escape from the cycle of Payday lending.
How Payday Loans Work
Most payday loans work by having the borrower write a post-dated personal check payable to the lender for the amount borrowed plus any fees. So, if you want to borrow $100, you’d write the lender a check for $115. The lender would hold onto that money until the loan is due (usually the borrower’s next payday). Once the loan comes due, the lender either cashes the check, or the borrower pays an additional fee to “roll over” the loan for an additional 14 days. So, if you roll over the loan three times, you’d be paying $45 to borrow $100!
Payday Loans: Eating Up Your Money
Everyone needs extra money at on time or another, which is how good people end up with payday loans. You may just need money for food, or for emergency car repairs or medical bills. Some people will even get a payday loan to pay off other payday loans. Whether you have four or five ongoing payday loans or just one, read on to find out what to do if you don’t have enough money to pay off the principal but are overwhelmed by the interest payments.
Option 1: Stop Payment on Post-Dated Checks
Do this before you have to make another interest payment. It will cost you to stop the payment, but it's worth it. Even if it goes in as a debit to your bank the bank will still stop it as long as you have the correct amount the check was written for and the name of the payee (be sure to give every single name the company uses).
After you stop payment, go to the payday loan and tell them you have stopped payment on the check. They will likely try to cash it anyway. Once they fail to collect on the check, though, the loan company will contact you to set up a payment plan. Often times they will even drop down your balance if you can pay the reduced balance right away.
Don't let them set up high weekly payments that you can’t afford. Instead, only agree to payments that you know you can make, even if it’s only $10 or $25 per week. In most cases, they will stop charging you interest. You can often negotiate a lower balance and if you can pay it off at that time then you should try to do that. They will often lower your balance even when you're making payments.
If you continue to fall behind on payments or stop payments altogether, they can take you to court or turn you over to a collection agency. However, they rarely if ever turn it over to collections.
Stopping Payment on a Check Is Perfectly Legal in Most States
You may be surprised that stopping payment on the check is even an option, but as Clark Howard says, there’s no such thing as debtors prison. Moreover, most states bad-check laws do not usually include post-dated checks because at the time you wrote the post-dated check you had no money to cover it and the lender knew it. Check with your own state to make sure, however.
Option 2: Send a Stop-Calling Letter
Some Payday Loan operators call and harass you in order to collect on their loan. If they do so, send them the letter below. Once you have set up your payment schedule, there is no reason to talk to them again and no reason for them to call. If they contact your work send a letter telling them not to contact your work. Send both letters certified mail so you have proof of receipt. You can also file a complaint with FTC if they continue to call you after receiving your letter.
Remember the person on the other end of the line is likely getting paid minimum wage and may have their own loans. They're just like you and me. They are not as important as they think they are. You do not have to suffer harassment from them.
These calls can get very out of hand, you need relief from them. This letter will not stop you from calling your loan holders and making arrangements or negotiating a different arrangement.
Sample Stop-Calling Letter
City, State Zip
Re: Account No. ####-####
Dear Sir or Madam:
I am writing to request that you stop all contact with me by phone or mail regarding the above account as required by the Fair Debt Collection Practice Act, 15 USC sec. 1692 c (c).
Your name and address
Other Steps to Take on Payday Loans
- Don’t avoid your creditors. When you’re behind on a loan, the last thing you want is to tell the person you owe the money to that you can’t pay them back. It’s much easier to ignore him or her and hope the debt will magically disappear. Instead, you should get in touch as soon as possible if you’re having trouble to ask for more time. If they think you’re acting in good faith, most lenders will work with you by offering an extension or even reducing the principal.
- Get credit counseling. There are non-profit groups in every state that offer free or low-cost credit counseling to consumers. However, be sure to avoid any group that wants a large upfront payment in exchange for negotiating your debt down - you can do that on your own with the advice that I’ve given you. For reputable credit counseling, you can check with your employer, bank, or housing authority. A good place to begin your search for a reputable agency is the National Foundation for Credit Counseling.
- Stop wage garnishment. If you agreed to a “voluntary wage assignment” clause in your initial agreement, write a letter revoking that agreement. That will prevent the lender from taking your wages without a court order.
- Talk to the regulators. Even if payday lending is legal in your state, talk to the agency that regulates them. You can file a complaint or simply ask for assistance. Some of the creditor’s practices may be illegal and regulatory agencies can also step in to help you work out a payment arrangement.
Don't Lose Hope.
Don't lose hope because you're in debt. Do your best start over and get you loans paid off. Getting rid of payday loans is your biggest step to a debt free life.
Please get yourself out of debt and live a much happier life.