[Q&A] How Can I Eliminate My Payday Loans? The Best Debt Relief and Debt Consolidation Options

Payday loans might feel like your only option when your back’s against the wall, but this high-risk borrowing tactic often leads to a vicious cycle of debt. If you’re feeling crushed by the weight of payday loans, you have options outside of taking on more debt.

As a long-time personal finance writer and Certified Financial Education Instructor®, I help borrowers in this scenario find the debt relief they need. My preferred method is a debt consolidation loan, but in some cases, a payday loan debt relief program might be the best path forward. Below, we’ll explore these and other options for getting out of payday loan debt.

Table of Contents

1. What is payday loan debt relief, and how does it work?
   1. How to choose a payday loan debt relief program
2. How does payday loan consolidation work?
3. Can I consolidate payday loans if I have bad credit?
4. What are the benefits of consolidating payday loans?
5. How do I consolidate payday loans on my own?
6. What are the risks of payday loan debt relief or consolidat6ion?
7. Should I work with a debt relief company for payday loans?
8. How can I avoid payday loans in the future?
9. FAQ

What is payday loan debt relief, and how does it work?

Payday loan debt relief programs are a form of debt settlement, but you don’t need to navigate the process alone. Instead, you’ll work with a highly rated debt settlement company, with experts who can advise on your best path forward and negotiate with lenders on your behalf to reduce your debt to a more manageable amount.

Your debt won’t go away entirely, and you’ll owe fees to the debt relief program you choose if they successfully negotiate your debt. But these programs provide breathing room when you’re feeling like there’s no way out.

How to choose a payday loan debt relief program

Not all debt relief companies are equal, and you’ll find debt relief scams to be aware of. The best debt relief companies don’t charge you until they’ve achieved a settlement that you agree to. They should have transparent pricing, accreditation with the Better Business Bureau, and strong customer reviews. Never choose a debt relief company that makes unrealistic promises or charges you upfront.

Three of the best payday loan debt settlement companies are National Debt Relief, Freedom Debt Relief, and Accredited Debt Relief. While their fee structures are expensive, they are transparent and well worth the cost for many who are deep in debt. Plus, these well-known companies have excellent customer reviews and a proven track record in negotiating down debt.

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Tip

Debt relief programs can have a huge negative impact on your credit score, and they’re expensive. If you can qualify for a debt consolidation loan—and manage the monthly payments—I highly advise going that route instead.

But if you don’t have the income or credit to get a debt consolidation loan, or your debt is too large to reasonably manage with a debt consolidation loan, a debt relief program may be your best path forward.

How does payday loan consolidation work?

Consolidating your payday loans works like any other debt consolidation program. You’ll apply for a debt consolidation loan—a type of personal loan—and use the loan proceeds to pay off your various debts, including payday loans. Instead of juggling multiple loans with varying interest rates and payment dates, you’ll now have one single debt consolidation loan to manage.

So why get a loan to pay off other loans? Theoretically, this new loan will have a much lower fixed interest rate (maximum of 36%) than your payday loans, and repayment terms might range from two to seven years, meaning monthly payments are manageable.

Payday loans, on the other hand, can have interest rates that exceed 400%, and you typically only have until your next paycheck to pay them off.

Can I consolidate payday loans if I have bad credit?

Because debt consolidation loans don’t share the same high fees as debt settlement companies, I typically urge borrowers to consider payday loan consolidation before a debt relief program. However, if you have bad credit, perhaps from past mistakes managing payday loans, you might find it challenging to qualify for a debt consolidation loan.

While lenders vary in their credit score requirements for personal loans, most want to see at least fair credit (580 or higher), if not good credit (670). That said, it’s possible to qualify for a debt consolidation loan with bad credit. Just be prepared for:

• A higher interest rate
• Limited choice of lenders
• Smaller loan amounts

The last disadvantage—smaller loan amounts—might preclude you from using debt consolidation for your payday loans. If you owe a significant amount of money, you might not be able to get a personal loan that can cover all of your debts. In that case, you can turn to debt relief services.

What are the benefits of consolidating payday loans?

Consolidating payday loans offers numerous benefits, such as:

• Lower interest rates: While bad-credit borrowers may only qualify for debt consolidation loans with high interest rates (upwards of 36%), this is still significantly lower than the interest rates payday loans may carry, sometimes more than 400%.
• Longer repayment terms: When you take out a payday loan, you typically have a couple of weeks to a month to repay it. With a debt consolidation loan, you have several years. This breaks down what you owe into much smaller, manageable monthly payments.
• Credit score impact: If you responsibly manage your consolidation loan, you may actually improve your credit score. A common alternative—debt settlement—can drop your credit score by 100 to 125 points.

How do I consolidate payday loans on my own?

Do-it-yourself payday loan consolidation works just like applying for any other personal loan. You’ll research lenders offering consolidation loans, get preapproved, compare loan offers, and apply for the loan with the best rate and terms. If approved, the lender will either pay off your loans for you, or you’ll receive a lump-sum payment to pay off your various payday loans yourself.

You can also attempt to settle debt on your own, without the help of a debt relief program. However, this means you’ll need to:

• Contact creditors on your own
• Make a case for lowering your debt
• Agree to new terms in writing
• Stick with the settlement plan you develop

Making a case and agreeing to new loan terms is easier said than done. It requires a lot of paperwork, a deep understanding of the loan repayment process, and a convincing argument that settling your debt for a lower amount is in the creditor’s best interest.

This is tough—but debt relief firms are pros at this. If you’re overwhelmed by the thought of settling payday loan debt yourself, a debt relief service may be well worth the cost.

What are the risks of payday loan debt relief or consolidation?

Both payday loan debt relief and consolidation come with their own risks to consider:

Debt relief risks

• High costs: Debt relief companies charge between 15% and 25% of the total debt settled; plus, you may have to pay other one-time and recurring fees.
• Not guaranteed: Debt settlement companies can’t guarantee they’ll reduce your debt. Even if they do succeed, they may only reduce your debt by a small percentage, meaning you’ll still owe a lot of money.
• Credit impact: Debt settlement negatively impacts your credit score, sometimes by 100 points or more.
• Lawsuit risk: If you attempt to settle your debt, lenders and debt collectors may respond with a lawsuit.
• Scams: While many legitimate debt relief companies exist, such as National Debt Relief and Freedom Debt Relief, a number of scammers may try to take advantage of borrowers in a tough situation. Scammers may charge upfront fees for debt relief, and you’ll never hear from them again.

Debt consolidation risks

• New debt: With a debt consolidation loan, you’re paying off old debts with new debt, meaning you’re potentially digging yourself into a deeper hole. It also perpetuates the habit of using debt to solve problems.
• Long-term commitment: Payday loans have short repayment periods; personal loans can last years. When you consolidate, you’re committing to several years during which a monthly loan payment eats into your budget. You risk being tempted to take out more payday loans to cover monthly costs.

If consolidation or relief is not an option, consider using the snowball (paying off the smallest balance first) or the avalanche method (paying off the highest interest first) if this is an option. Talk to the lenders to let them know you are trying to pay off the loans without consolidation or debt relief—it is wise to keep them informed. Consider alternative ways to pay off the loans, such as asking a trusted family member or friend, checking with your employer to see if they have any hardship programs, and local charities/grants that help you pay for essentials so other income can be directed toward paying off the debt.

Erin Kinkade, CFP®

Should I work with a debt relief company for payday loans?

If your payday loan is small enough to repay it with your next paycheck—and instead get a personal loan or use a cash advance app the next time you’re struggling with bills—you probably don’t need to turn to a debt relief company. If you need a little more financial help, see if you can qualify for a debt consolidation loan large enough to pay off your debts.

But if your debts are large, and your credit score and income limit your debt consolidation options, it’s worth doing a free consultation with a debt relief company. Many of the best debt settlement services, such as Accredited Debt Relief, provide a customized plan and recommendations that fit your needs, even if that means choosing a path other than their debt relief program.

Education is key. When I work with clients in this predicament, I start by educating them on why they should avoid the payday cycle debt and how they can avoid it by budgeting carefully, being patient, and potentially engaging a financial counselor.

Erin Kinkade, CFP®

How can I avoid payday loans in the future?

Once you’ve gotten out from under your payday loan debt, it’s important to ensure it doesn’t happen again. But when money’s tight and bills come in, how can you avoid payday loans?

• Start saving now: Build an emergency fund you can count on the next time you face unexpected expenses. That might mean cutting discretionary spending and getting a second job to supplement your income now.
• Apply for a personal loan: Some personal loans have same-day funding. If you have a big bill coming up that you know you’ll need help with, apply for a personal loan as soon as possible. The interest rate may still be high, but it will be significantly less than a payday loan.
• Get a zero-interest credit card: Some credit cards advertise 0% interest during an introductory period. If you qualify, you can pay for your unexpected expense with the card, and then pay the card off entirely before the end of the intro period. If you can’t resist the temptation of swiping the card for other purchases, however, this isn’t a good option for you.
• Try an employer advance: Your company may offer an advance on your paycheck through an app, as an employee benefit. Even if your company doesn’t have this option, you can find several paycheck advance apps with lower fees than a traditional payday loan.
• Get a credit counselor: If debt is something you’ve struggled with your whole life, consider working with a credit counselor. They often offer free consultations and advice, but they may try to sell you on a debt management plan.

To avoid payday loans in the future, begin by preparing an emergency fund (even one or two pay periods’ worth to begin with) and building it to three months’ worth of living expenses. This helps avoid overborrowing.

Erin Kinkade, CFP®

FAQ

Will consolidating payday loans hurt my credit?

Consolidating payday loans can have mixed effects on your credit. Applying for a consolidation loan may result in a hard inquiry on your credit report, which could lower your credit score in the short term. If a consolidation program involves settling debts for less than the full amount, it may be reported to credit bureaus as a negative mark.

However, consolidation can improve your credit over time by simplifying payments, reducing your debt-to-income ratio, and establishing a consistent payment history. Despite the initial impacts, the long-term benefits of paying off payday loans and regaining financial stability tend to outweigh the short-term credit effects.

Can I consolidate payday loans without closing my bank account?

Yes, you can consolidate payday loans without closing your bank account. Many consolidation programs and lenders can work with your account, setting up automatic payments to streamline the repayment process. However, if payday lenders have direct access to your account and continue to withdraw funds, you may need to take additional steps to protect your finances.

You can revoke ACH authorization to stop automatic withdrawals or ask your bank to block specific lenders. If these measures don’t resolve the issue, switching to a new bank account might be necessary. Consolidation services can often guide you on managing this process while keeping your account secure.

Are payday loan debt relief companies legit?

Many payday loan debt relief companies are legitimate and can provide valuable assistance in managing payday loan debt. These companies often negotiate with lenders to lower your total debt or consolidate multiple loans into a single payment plan. Reputable companies are transparent about their fees, processes, and success rates, helping borrowers regain control of their finances.

However, watch out for scams. Predatory companies might charge exorbitant upfront fees or make unrealistic promises, such as guaranteeing debt forgiveness. Always research a company’s reputation through customer reviews and trusted sources, such as the Better Business Bureau or Trustpilot, to ensure you’re working with a reliable provider.

What is the fastest way to pay off multiple payday loans?

The quickest way to eliminate payday loans is to consolidate them into one manageable payment or negotiate with lenders for reduced balances or extended repayment terms. Debt consolidation loans or payday loan relief programs can simplify payments, often at a lower interest rate, helping you pay off debts faster.

If consolidation isn’t an option, focus on increasing your income and redirecting extra funds toward repayment. Paying off the highest-interest loans first can minimize costs, and cutting unnecessary expenses can free up additional money to tackle your balances. Acting right away can help you resolve payday loan debt efficiently.