Payday loans are short-term, small-dollar loans known for their high interest rates or high fees that are marketed to low-income workers with few avenues of traditional credit. They are called payday loans because a borrower gives the lender a check for the entire loan balance, plus any associated fees. The lender cashes the check on the borrower's payday. People living paycheck to paycheck often cannot bear the brunt of paying an entire loan balance--usually about $300--in one swoop. To avoid this, they may pay additional fees to extend the term of the loan. This cycle has devastating effects on a person's ability to ever pay back such loans. Consumer credit counseling agencies can negotiate on your behalf to form a payment plan.
Find a consumer credit counselor. In most areas of the country there typically are several companies and nonprofit organizations whose stated goal is to help people get out of debt. Many of these companies are scams, though. They take fees and do little to help.
The U.S. Department of Justice maintains a list of approved credit counselors (see References). These counselors offer debtors required credit counseling prior to bankruptcy, but their services may be available to people seeking to re-organize their financial house. The U.S. Department of Housing and Urban Development also maintains a list of counselors that advise people on the financial aspects of home buying (see References). Many of these counselors also work with people trying to get out of debt.
Contact a counselor near you. According to the Federal Trade Commission, many credit counseling agencies will offer their services at little or no cost to you. When you call to set up an appointment, ask what paperwork and documentation you will need in preparation for the meeting.
Research options with your counselor. There are plenty of options to repay the loan. If your lender is a member of the Community Financial Services Association, an industry trade association, it should offer you a repayment plan upon request. Filing for bankruptcy may also be an option. In some cases, a counselor may institute a debt management plan in which you write a check each week to the counselor. They, in turn, will pay your bills from the funds you give them. These programs help borrowers live on a budget and cut off access to credit.
- HUD: HUD-Approved Housing Counseling Agencies
- U.S. Trustee Program/Department of Justice: Approved Credit Counseling Agencies
- Federal Trade Commission: Payday Loans Equal Very Costly Cash
- Arizona Consumer Council: Help for Those Trying to Pay off a Payday Loan
- Arizona Consumers Council: Find a Good Credit Counselor