4 Tips to Pay Off Your Payday Loans with Bad Credit
If you are like the two million Canadians living from paycheck to paycheck, you probably have intimate knowledge of payday loans and how they work. In many ways, taking out payday loans seems to be the best option if you run out of cash or if an unplanned expense pops up and you have nothing set aside to cover it. While these may seem to offer some type of reprieve, you may find yourself winding up in a worse financial situation than before.
It is easy to fall down the rabbit hole that is a payday loan. Many lenders make the process trouble-free. With traditional bank loans, you need to have a good credit score to get approval. Payday loans do not require such. All you need is to provide some information, fill out a form, and have instant cash. You can also renew the loan before it is even due, or opt for top-ups. Either way, you are setting yourself for a cycle of never-ending debt.
What is a Payday Loan
Payday loans are short-term loans of up to $1,500 that come with high-interest rates and fees. They are also called cash advance loans, as you need to pay them back when you receive your next paycheck. If you are unable to settle them on time, those interest charges will keep on piling up. Most private lenders offer payday loans in stores or online. You just have to submit proof of regular income, a permanent address, and a bank account.
Once approved, your chosen lender will require you to sign an agreement specifying the cost of your loan, including interest and fees. Your due date to pay will also be indicated. The money will be deposited directly into your bank account. There are also instances when you will be given cash or a check. Online payday loans may seem more convenient, but you need to be extra careful with them. Always check if your online lender is licensed or not.
How to Pay off Payday Loans with Bad Credit
If you find yourself trapped in a series of escalating payments with payday loans, there are ways to pay them for good and the soonest way possible.
1. Debt Consolidation Loans
The most ideal option is to apply for a debt consolidation loan. This type of loan allows you to combine several different debts into one. You will have one monthly payment on a pre-determined schedule of your choosing. The best part is that debt consolidation loans often have lower interest rates. It also lets you stretch what you owe into payments over a year or so, making it easier for your budget.
The downside to most debt consolidation loans, however, is that you need to have a good credit score and rating to qualify – something that most borrowers of payday loans often do not have. If you have bad credit but still want to apply for a debt consolidation loan, you can do it through home equity loans. Lending institutions like Alpine Credits offer this service. As long as there is equity in your home, you are eligible. Click here for more information about getting this type of loan in London, Ontario.
2. Extended Payment Plan
You can also go directly to the source to settle your loan. Some lenders offer an extended payment plan (EPP). This option is usually offered once a borrower has taken out three payday loans within 63 days. An EPP lets you pay your dues over a longer period of time, about four extra pay periods, to settle the loan without adding more interest or fees. As long as you make payments each pay period, you will not be handed over to collections.
3. Alternative Loans
Another way to pay off your payday loan is by using other sources of money. Compared to a payday loan, any other loan will be more affordable. Look for alternative lenders like small community banks and credit unions. They often cater to borrowers with bad credit. Just be careful when searching as you may run the risk of encountering predatory lenders. You can find reputable ones through peer-to-peer lending platforms.
Peer-to-peer loans are easy to process. You can still qualify, even with bad credit. While they do require proof of income and other assets, these types of loans do not always check credit scores.
You can also get the loan amount transferred to your bank account within several days. Credit cards can likewise be considered an alternative. Compared to payday loans, they have lower interest rates, so it will be easier for you to pay them off.
If you have trouble with approval for your loan applications, you can always ask someone with good credit to co-sign with you. This is a huge responsibility for the person, as their credit will be damaged in case you default. They will also be 100% responsible for paying off the loan. Lenders have the right to bring legal action against your co-signer, so make sure that they understand the risks involved.
4. Debt Management Plans
If all other options fail, it may be wise to consider pursuing a debt management plan (DMP). In this strategy, you will be working with a certified credit counselor who will negotiate with payday loan lenders on your behalf. You will be paying less than the originally agreed amount, but your credit score will suffer. Participating in a DMP will also be included in your credit reports. Going forward, lenders may see you as high-risk.
Other Ways to Settle Payday Loans
Sometimes, securing more cash to increase your budget is the only option to pay off your loans. Finding extra work, at least for the short term, will allow you to raise money quickly and help you gradually get back on your feet. This may be difficult, more so if you are already spread thin, but your effort will go a long way. Keep hustling to get that extra income until you finally settle your payday loan.
Cutting down on your spending also helps. There are many ways to do this. One is by making a budget to set off your limits and sticking to it. Another fool-proof way to spend less is by switching to a cash-only system. Automate your payments to savings and expenditures so you will not be tempted to splurge on non-essential items. Moreover, cut unnecessary costs like cable and other subscriptions.