Difference between revisions of "Stop Payday Loans"
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== Steps == | == Steps == | ||
=== Stopping the Cycle of Payday Loans === | === Stopping the Cycle of Payday Loans === | ||
| − | #Recognize the trap. Many people get trapped in a never-ending cycle of payday loans because they are unable to pay the original amount back. Instead, they pay a small fee to renew the loan for another term.<ref>http://blog.credit.com/2013/04/trapped-in-payday-loan-debt-how-to-escape/</ref> | + | #Recognize the trap. Many people get trapped in a never-ending cycle of payday loans because they are unable to pay the original amount back. Instead, they pay a small fee to renew the loan for another term.<ref name="rf1">http://blog.credit.com/2013/04/trapped-in-payday-loan-debt-how-to-escape/</ref> |
| − | #*Payday lenders typically charge extremely high interest rates, which can translate to around 400% APR. This means the amount you owe can add up very quickly if you don't pay the loan off right away.<ref>http://www.michigan.gov/ag/0,1607,7-164-17334_17362-171016--,00.html</ref> | + | #*Payday lenders typically charge extremely high interest rates, which can translate to around 400% APR. This means the amount you owe can add up very quickly if you don't pay the loan off right away.<ref name="rf2">http://www.michigan.gov/ag/0,1607,7-164-17334_17362-171016--,00.html</ref> |
#*Most payday lenders will require that you give them a postdated check for the amount owed or authorize them to withdraw money from your checking account when your payment is due (known as a Continuous Payment Authority). If you do not have money in your account, you will probably be charged a fee by the lender, as well as an overdraft charge by your bank. | #*Most payday lenders will require that you give them a postdated check for the amount owed or authorize them to withdraw money from your checking account when your payment is due (known as a Continuous Payment Authority). If you do not have money in your account, you will probably be charged a fee by the lender, as well as an overdraft charge by your bank. | ||
| − | #Understand the true cost. Make sure you understand exactly how much interest is being charged, when your payment will be due, and what your options will be if you can't afford to pay before you take a payday loan.<ref>http://www.publicintegrity.org/2011/09/30/6811/trouble-online-payday-loan-you-might-not-have-repay-it</ref> | + | #Understand the true cost. Make sure you understand exactly how much interest is being charged, when your payment will be due, and what your options will be if you can't afford to pay before you take a payday loan.<ref name="rf3">http://www.publicintegrity.org/2011/09/30/6811/trouble-online-payday-loan-you-might-not-have-repay-it</ref> |
#*Making a chart or spreadsheet that illustrates how much you will owe if you continue to renew the loan may help motivate you to pay it off as quickly as possible. | #*Making a chart or spreadsheet that illustrates how much you will owe if you continue to renew the loan may help motivate you to pay it off as quickly as possible. | ||
| − | #Pay off the loan if possible. Payday loans are generally due to be paid back in full on your next scheduled pay day. This generally means you have two weeks to pay the loan back. The most efficient way to stop a payday loan is to simply pay it back. If you pay the loan back right away, your fees will generally not be very high.<ref>https://www.nclc.org/images/pdf/high_cost_small_loans/payday_loans/report-stopping-payday-trap.pdf</ref> | + | #Pay off the loan if possible. Payday loans are generally due to be paid back in full on your next scheduled pay day. This generally means you have two weeks to pay the loan back. The most efficient way to stop a payday loan is to simply pay it back. If you pay the loan back right away, your fees will generally not be very high.<ref name="rf4">https://www.nclc.org/images/pdf/high_cost_small_loans/payday_loans/report-stopping-payday-trap.pdf</ref> |
#*Try to [[Reduce Expenses | save money]] by cutting back on nonessential expenses like dining out and entertainment. You can also [[Make Money Fast|raising extra money]] by selling items that you no longer use, working overtime, or performing odd jobs. | #*Try to [[Reduce Expenses | save money]] by cutting back on nonessential expenses like dining out and entertainment. You can also [[Make Money Fast|raising extra money]] by selling items that you no longer use, working overtime, or performing odd jobs. | ||
#*If necessary, ask trusted friends and family to help you get out of a payday loan cycle by lending you some money. You can pay them back with regular installments and you will no longer have to worry about growing interest and fees. | #*If necessary, ask trusted friends and family to help you get out of a payday loan cycle by lending you some money. You can pay them back with regular installments and you will no longer have to worry about growing interest and fees. | ||
| − | #Prioritize. It is important to pay your payday loans back, but it is not more important than paying your rent or putting food on your family's table. Make sure to always put the necessities first.<ref>http://moneyaware.co.uk/2013/07/how-do-i-get-out-of-payday-loans/</ref> | + | #Prioritize. It is important to pay your payday loans back, but it is not more important than paying your rent or putting food on your family's table. Make sure to always put the necessities first.<ref name="rf5">http://moneyaware.co.uk/2013/07/how-do-i-get-out-of-payday-loans/</ref> |
#*If you have other loans to pay off as well, such as credit cards, pay off the debt with the highest interest rate first. This will almost always be your payday loan. Make sure you continue to pay the minimum amount owed on your credit card so you don't go into default. | #*If you have other loans to pay off as well, such as credit cards, pay off the debt with the highest interest rate first. This will almost always be your payday loan. Make sure you continue to pay the minimum amount owed on your credit card so you don't go into default. | ||
| − | #Ask about payment plans. Many lenders offer payment plan options to customers who are unable to pay back the full amount they owe, but you might have to ask about this option.<ref | + | #Ask about payment plans. Many lenders offer payment plan options to customers who are unable to pay back the full amount they owe, but you might have to ask about this option.<ref name="rf1" /> |
===Stopping Illegal and Unethical Practices=== | ===Stopping Illegal and Unethical Practices=== | ||
| − | #Cancel Continuous Payment Authorities. You have the right to revoke your authorization to the lender to withdraw money from your account at any time, and you should do so if you do not have enough money in your account to pay back the loan. Do not let the lender tell you otherwise!<ref>http://www.consumerfinance.gov/askcfpb/1605/how-can-i-stop-payday-lender-electronically-taking-money-out-my-bank-or-credit-union-account.html</ref> | + | #Cancel Continuous Payment Authorities. You have the right to revoke your authorization to the lender to withdraw money from your account at any time, and you should do so if you do not have enough money in your account to pay back the loan. Do not let the lender tell you otherwise!<ref name="rf6">http://www.consumerfinance.gov/askcfpb/1605/how-can-i-stop-payday-lender-electronically-taking-money-out-my-bank-or-credit-union-account.html</ref> |
#*You can revoke your authorization for withdrawals by notifying the lender directly. If you choose to do this, you should consider doing it in a way that is traceable, such as sending a certified letter, so you will have evidence of the correspondence if they deny it later. | #*You can revoke your authorization for withdrawals by notifying the lender directly. If you choose to do this, you should consider doing it in a way that is traceable, such as sending a certified letter, so you will have evidence of the correspondence if they deny it later. | ||
#*You can also ask your bank to cancel the authorization. You should do this if you have any reason to believe that the lender will not comply with your request. | #*You can also ask your bank to cancel the authorization. You should do this if you have any reason to believe that the lender will not comply with your request. | ||
| − | #Be on the lookout for automatic renewals. If you have given your lender the authority to take money out of your bank account electronically, it is very important that you confirm with the lender that they will take the entire amount that you owe, rather than just a renewal fee. Some companies will only take the renewal fee out, which will never reduce the amount that you owe.<ref | + | #Be on the lookout for automatic renewals. If you have given your lender the authority to take money out of your bank account electronically, it is very important that you confirm with the lender that they will take the entire amount that you owe, rather than just a renewal fee. Some companies will only take the renewal fee out, which will never reduce the amount that you owe.<ref name="rf3" /> |
| − | #Don't tolerate threatening phone calls. It is illegal for collection agencies to threaten you with prison time or other legal implications, but many of the collections agencies employed by payday lenders will do exactly that. If this happens to you, be firm. Tell the caller that you are aware that what they are telling you is untrue and that it is illegal for them to tell you otherwise. You should also tell them that you plan on reporting their actions to the authorities.<ref>http://www.bankrate.com/finance/debt/how-to-handle-payday-loan-harassment.aspx</ref> | + | #Don't tolerate threatening phone calls. It is illegal for collection agencies to threaten you with prison time or other legal implications, but many of the collections agencies employed by payday lenders will do exactly that. If this happens to you, be firm. Tell the caller that you are aware that what they are telling you is untrue and that it is illegal for them to tell you otherwise. You should also tell them that you plan on reporting their actions to the authorities.<ref name="rf7">http://www.bankrate.com/finance/debt/how-to-handle-payday-loan-harassment.aspx</ref> |
#*If you continue getting these kinds of calls, you may want to start recording them. | #*If you continue getting these kinds of calls, you may want to start recording them. | ||
| − | #Check if the loan is legal. If you borrowed from on online payday lender, it is possible that your loan is not legal at all. Each state in the United States has different laws regarding payday lenders, and some prohibit many of the practices employed by online lenders. If it is determined that your loan was not made legally, you may not have any obligation to pay it back. Contact the Department of Financial Services in your state to determine if your online payday loan is legal.<ref | + | #Check if the loan is legal. If you borrowed from on online payday lender, it is possible that your loan is not legal at all. Each state in the United States has different laws regarding payday lenders, and some prohibit many of the practices employed by online lenders. If it is determined that your loan was not made legally, you may not have any obligation to pay it back. Contact the Department of Financial Services in your state to determine if your online payday loan is legal.<ref name="rf3" /> |
#*You may have to close your bank account in order to prevent the lender from continuing to withdraw money. | #*You may have to close your bank account in order to prevent the lender from continuing to withdraw money. | ||
| − | #Report illegal practices. If you have any reason to believe that the payday lender you are working with is violating any federal or local laws, report them to the Department of Financial Services or the Federal Trade Commission right away.<ref>https://www.ftc.gov/news-events/media-resources/consumer-finance/payday-lending</ref> | + | #Report illegal practices. If you have any reason to believe that the payday lender you are working with is violating any federal or local laws, report them to the Department of Financial Services or the Federal Trade Commission right away.<ref name="rf8">https://www.ftc.gov/news-events/media-resources/consumer-finance/payday-lending</ref> |
===Ending Your Reliance on Payday Loans=== | ===Ending Your Reliance on Payday Loans=== | ||
| − | #Borrow from a bank or use a credit card. If you need a small loan to cover an unexpected expense, many banks and credit unions offer small personal loans that have much lower rates than payday loans. Likewise, you may be able to save a lot of money by using your credit card instead of taking a payday loan.<ref | + | #Borrow from a bank or use a credit card. If you need a small loan to cover an unexpected expense, many banks and credit unions offer small personal loans that have much lower rates than payday loans. Likewise, you may be able to save a lot of money by using your credit card instead of taking a payday loan.<ref name="rf4" /> |
#*Always read the fine print and make sure you understand exactly how much you will owe in interest, regardless of how you borrow. Sometimes bank loans are actually not more affordable than payday loans. | #*Always read the fine print and make sure you understand exactly how much you will owe in interest, regardless of how you borrow. Sometimes bank loans are actually not more affordable than payday loans. | ||
#*Use all kinds of credit cautiously. You should never borrow more than you are capable of paying back, unless you have a true emergency. | #*Use all kinds of credit cautiously. You should never borrow more than you are capable of paying back, unless you have a true emergency. | ||
| − | #[[Save Money | Start saving]]. Pay off the loan first, then set aside at least a little bit of money to make sure you never need to take out a loan again. Even $10 per week could be $520 in a year, but try to go beyond that if you can.<ref>http://www.enemyofdebt.com/when-youre-tired-of-being-broke-youll-start-saving/</ref> | + | #[[Save Money | Start saving]]. Pay off the loan first, then set aside at least a little bit of money to make sure you never need to take out a loan again. Even $10 per week could be $520 in a year, but try to go beyond that if you can.<ref name="rf9">http://www.enemyofdebt.com/when-youre-tired-of-being-broke-youll-start-saving/</ref> |
#*Stick to a [[Budget Your Money|budget]] to make saving easier. Start with a blank piece of paper and write all your monthly income in one column. Write all your monthly expenses in a second column. The difference between your income and expenses is what you can put towards savings or discretionary purchases. | #*Stick to a [[Budget Your Money|budget]] to make saving easier. Start with a blank piece of paper and write all your monthly income in one column. Write all your monthly expenses in a second column. The difference between your income and expenses is what you can put towards savings or discretionary purchases. | ||
#Prevent emergencies. Not all emergencies can be foreseen or avoided, of course, but a bit of planning can help protect your from financial ruin. | #Prevent emergencies. Not all emergencies can be foreseen or avoided, of course, but a bit of planning can help protect your from financial ruin. | ||
