Paying off a payday loan is not the same as a credit card or personal loan. Payday loans are short-term and are expected to be paid back with your next paycheck. The timeliness, convenience, and ease of borrowing with a payday lender may overshadow the fact that the money needs to be paid back quickly. Perhaps this is why many consumers that borrow this way find themselves unable to repay within the expected time frame, forcing them to have to extend their loan ("rollover") and pay high interest and fees as a result. If you have taken out a payday loan and are finding yourself in this very predicament, what are some ways you get creative in order to pay off what you owe and cross that payday loan lender off your list of debtors?
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1. Cash out your savings account- You may not have a dime saved which is why you got the loan in the first place but if you do, this may be a great option for you. It's scary tapping into your reserve but in the long run, you will be better off if you get your fast cash loan paid off. You most likely are earning a very low interest rate on your savings so it's not like you will be losing a lot of money should you turn to your savings to pay off your payday loan balance. In fact, the amount of interest and fees you will pay in the process of trying to pay off the loan will greatly outweigh what you would make off your savings. This may be a good learning lesson for the next time you find yourself in a cash crisis. If you have to, use your savings instead of borrowing. If you have the option, don't spend at all.
2. Turn to family and friends- Perhaps this is the route you could/should have taken in the first place when you needed help financially, but regardless, this may be an option for you now. Assuming you have a good relationship with those you are close to, you may be able to borrow what you need to pay off your loan. If so, take a business point of view and type up a written agreement between you and your lender. Establish an interest rate and repayment terms to avoid any misunderstandings. Make your payments on time and fulfill your part of the agreement. The last thing you want to do is default on your friend or family member and risk ruining the relationship you have with them. Money should never come between you and your loved ones.
3. Borrow against your life insurance policy- If you have a life insurance policy with a cash value, you can borrow against it. The interest rate to do so is going to be much lower than what you are paying on your payday loan. Not too mention, you can take your time repaying your insurance company. The only downside to this is that if you don't repay what you borrowed, it will be deducted from the face value of your policy which will effect the beneficiary.
4. Borrow from your 401(k)- If you participate in a 401(k) retirement plan at work you may be able to borrow against the value of your policy. It's usually up to 50% or $50,000. The downside to this option is that you will have to pay penalties to withdraw as well as being taxed twice on interest earned on that money. You will also have to payback those monies within 5 years.
If you are struggling to pay off your payday loan, look at other options afforded you. If you find that you don't have any other options, keep making your loan payments and make sure you communicate with your lender to let them know where you stand.
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