Getting out of payday loan debt

Step 1: stop the renewals

Each renewal costs a new fee and leaves the balance untouched. Rolling over a $400 loan four times at $15 per $100 costs $240 and you still owe $400. The goal of every option below is to turn that into payments that reduce the debt.

Step 2: ask for an extended payment plan

Many states that allow payday loans require lenders to offer an extended payment plan, typically four or more equal installments with no added fees, if you ask before the loan is due. Even where it is not required, members of the industry’s main trade associations commit to offering one. Request it in writing and keep a copy. Your state’s page shows the local rule.

Step 3: consider a consolidation loan

A consolidation loan pays off the payday lenders and leaves one installment loan at a lower rate.

Consolidation helps only if the new rate is lower and you stop taking new payday loans.

Step 4: nonprofit credit counseling

Counselors at nonprofit agencies review your whole budget, contact creditors and can set up a debt management plan with reduced interest. The first session is free and the monthly plan fee is modest and regulated. Find an agency through the National Foundation for Credit Counseling.

Protect your bank account

A payday lender collects through the account access you gave it. You have a federal right to revoke that authorization: tell the lender in writing, then give your bank a written stop-payment order. This does not erase the debt, but it stops repeated withdrawals and overdraft fees while you arrange a plan.

Relief offers to avoid

Be wary of companies that advertise payday loan relief and ask for fees before settling anything, tell you to stop communicating with lenders, or promise to erase the debt. Federal rules bar debt relief companies that sell by phone from charging before they have produced results for you. Check any company with your state attorney general.

If the lender sues or a collector calls

Do not ignore a court summons; a default judgment can lead to wage garnishment. You cannot be jailed for an unpaid loan. See can payday lenders sue you and what happens if you don’t pay.

Bankruptcy

Payday loans are unsecured debts and can generally be discharged in bankruptcy. If payday debt is one part of a larger problem, speak with a legal aid office or a bankruptcy attorney about whether it fits your situation.