How to get out of payday loans: the order of moves that works

To get out of payday loans, stop renewing them, take back control of your bank account, then replace the debt with something cheaper or put it on a plan you can afford. The fees are the problem: $400 borrowed at $15 per $100 costs $60 every two weeks you renew, which is about 391% APR, and none of it touches the $400.

The moves below are in the order most people should try them. You won’t need all of them. Most people stop at step three or four.

First, see what renewing is really costing you

Say you borrowed $400 and the lender charges $15 for every $100, due in 14 days. That’s a $60 fee. On payday you can’t cover $460, so you pay the $60 and renew. Two weeks later, same thing.

Two-week period	Fee paid	Total fees so far	You still owe
1	$60	$60	$400
2	$60	$120	$400
3	$60	$180	$400
4	$60	$240	$400
5	$60	$300	$400

After ten weeks you’ve paid $300, three quarters of what you borrowed, and you owe exactly what you owed on day one. As an annual rate, $15 per $100 for 14 days works out to 15% × 365 ÷ 14, or about 391% APR. The FTC describes payday loans as carrying APRs of “390% or more”, so this example is typical, not extreme.

Plug your own loan into the cost calculator to see your number next to a 28% credit union loan.

Step 1: Stop renewing and take back your account

Two things, both this week.

Don’t renew again if you can avoid it. Every renewal is another fee with no progress. If you can’t pay in full on the due date, you want a payment plan (step 2), not another rollover.

Get control of the withdrawals. Most payday lenders took your bank account details or a check when you borrowed. If they pull the full balance on payday, you may be short on rent, food or the bills that keep the lights on, and you may pay overdraft fees on top. The CFPB lays out how to stop it in its guidance on lender withdrawals:

1. Write to the lender and revoke your permission for electronic withdrawals (ACH).
2. Tell your bank or credit union you revoked it.
3. Place a stop-payment order with your bank at least 3 business days before the scheduled withdrawal. Your bank may ask you to confirm it in writing within 14 days, and banks commonly charge a fee for this.
4. Watch your account and report any withdrawal you didn’t authorize quickly.

Stopping the withdrawals does not cancel the debt. You still owe the balance, and the CFPB says so. What you get back is control over the order you pay things in. Pay for housing, food and getting to work first, then deal with the loan using one of the steps below.

The full walkthrough, with a sample letter, is in how to stop payday loan withdrawals.

Step 2: Ask for your state’s extended payment plan

An extended payment plan lets you pay the balance off in installments instead of renewing. Whether the lender has to offer one depends on your state. Where a state does require it, the law sets the details: who qualifies, how many installments, when you have to ask, and whether there’s a fee.

The CFPB’s advice to anyone who can’t repay is to contact the lender right away and ask for an extended repayment plan. It notes that whether one is available depends on state law or the lender’s own policy, and there may be a fee.

Check your state’s page before you call so you know what the law requires the lender to offer. Then read extended payment plans for how to ask. Some lenders also belong to a trade association whose voluntary code says members will offer a longer repayment option. That’s an industry promise, not law, but it’s worth asking about if your state doesn’t require a plan.

Make the call before the due date if you can, and check your state’s page for any deadline.

Step 3: Replace it with a credit union PAL

If you need to borrow to pay off the payday loan, a Payday Alternative Loan (PAL) from a federal credit union costs a small fraction of what a payday loan does. The National Credit Union Administration sets the rules:

• The maximum rate is 28% a year, all finance charges included, through September 10, 2027, per NCUA Letter 26-FCU-02.
• The application fee can’t be more than $20.
• No rollovers. The loan has to be paid down in regular installments.
• PAL I: $200 to $1,000, 1 to 6 months, and you must have been a member for at least a month.
• PAL II: up to $2,000, 1 to 12 months, no membership wait.

An example, so you can compare: a $400 PAL at 28% APR, repaid over 6 months, comes to about $72.22 a month. Total interest is about $33, plus an application fee of up to $20. That’s the most it can cost at the federal maximum; a credit union may charge less. Compare that with the $300 in fees from five renewals above.

Details on both loan types and how to find a credit union are in payday alternative loans.

Step 4: Talk to a nonprofit credit counselor

If you have more than one payday loan, or payday loans plus credit cards and other bills, a nonprofit credit counselor can look at the whole picture with you. The CFPB tells payday borrowers who can’t repay to speak with a credit counselor.

Two places to start: the National Foundation for Credit Counseling’s agency finder and the Financial Counseling Association of America’s counselor finder.

A counselor may suggest a debt management plan (DMP), where you make one monthly payment to the agency and it pays your creditors. A DMP may not cover payday loans at all. The NFCC describes a DMP as a repayment program for unsecured debt, “mainly, credit cards,” and says loans “typically can’t be included”. It doesn’t say anything about payday loans by name. So ask the counselor directly whether your payday lenders will accept payments through the plan. Even if they won’t, putting your cards on a DMP can free up cash to clear the payday loans.

More in nonprofit credit counseling. If you’d like us to connect you with one, use the help form.

Step 5: Talk to the lender yourself

You can call the lender at any point, and you should if you’re going to miss a payment. Ask, in this order:

• Is there an extended payment plan, and what does it cost?
• Can the payment be split or moved without a new fee?
• If I pay a set amount on a set date, will you stop other collection activity?

Get anything they agree to in writing, by email or letter. If a lender or a collector working for it threatens you with jail, write down the date, time and what was said. Per the CFPB, a debt collector can’t threaten to have you arrested for an unpaid debt. See can payday lenders sue you for what they can and can’t do.

What not to do

Don’t pay a “payday relief” company up front. These companies promise to settle or consolidate your payday loans, often tell you to stop paying the lenders, and want a fee first. Under the FTC’s Telemarketing Sales Rule, a for-profit debt relief company selling by phone can’t collect a fee until it has actually settled or changed at least one of your debts and you’ve made a payment under that deal. In the FTC’s words, “Only scammers will try to collect fees from you before they settle any of your debts.”

In 2016 the FTC shut down an operation called Payday Support Center that had promised to resolve people’s payday loans through a hardship program. People stopped paying their lenders and got no relief. See payday loan consolidation for how to tell a real consolidation loan from a scheme.

Don’t take a new payday loan to pay an old one. It resets the clock and adds a second set of fees.

Don’t ignore court papers. If you’re sued, respond. The CFPB warns that if you’re sued and don’t comply with a court order, you could be arrested. The arrest risk comes from ignoring the court, not from the debt itself.

Step 6: Bankruptcy, as a last resort

If payday loans are one part of a much bigger pile of debt you can’t repay, bankruptcy may be worth a conversation with an attorney. It’s a serious step with long-lasting effects, which is why it’s last on this list.

Two facts to know going in. Before you can file, you must take credit counseling from an agency approved by the U.S. Trustee Program, within 6 months before filing. And loans taken shortly before filing can get extra scrutiny, so tell the attorney when you took out each payday loan. Our guide to payday loans and bankruptcy has the specifics.

If you’re in the military

Active-duty servicemembers and their dependents have extra protection under the Military Lending Act, including a 36% cap on the cost of covered loans and a ban on the same lender rolling the loan over. A loan that breaks those rules is void. See the Military Lending Act and payday loans.