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Debt Consolidation for Payday Loans

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About 55 million Americans don’t have emergency savings, so it follows that when emergencies happen, they turn to payday loans.

Approximately 12 million consumers use payday loans and typically pay $15 for every $100 borrowed. The annual percentage rate (APR) on a typical loan is 399%.

Another striking statistic: 80% of payday loans are rolled over or renewed within two weeks. Payday loans usually have a two-week repayment period. If you can’t pay it all back in two weeks, the loans are “rolled over” which means a new payday loan is taken out to cover the balance of the old loan.

The new loan has new fees making the cost to borrow exponentially more expensive. It creates a cycle of debt that can be difficult to overcome. In order to break it, consumers should look into debt consolidation to pay off the payday loans. If you need a paycheck advance in the future, there are plenty of alternatives to payday loans without the outrageous fees.

Options to Get Out of Payday Loans

The issue comes back to the two-week repayment period. It isn’t enough time to get breathing room after a financial emergency like an overdue utility bill or a car that breaks down. Sure, the light bill or car repair could be paid off with a payday loan and your next paycheck might cover the loan, but that doesn’t leave much money for gas, groceries, rent, etc. Those expenses will continue to add up, dragging  you further behind.

These options will give you more time to get your finances in order.

Debt Consolidation Loan

Debt consolidation is when you take out a loan with a lower interest rate to pay off multiple debts with higher rates. The result is one “consolidated” payment that is easier to manage.

Usually this applies to credit card debt, but the same strategy could be used to pay off payday loans. Payday loans have extremely high interest rates (sometimes hidden as fees), so almost any personal loan is a better alternative.

With a debt consolidation loan, you have more time to pay off your debt and it’s cheaper, so what’s the catch? To qualify for a personal loan, you need decent credit. If your credit is poor, you might need to look to alternatives.

Debt Management Plan

There’s a good chance you have other types of debt if you have payday loans. If that includes maxed-out credit cards, a debt management plan might help. These plans are offered by nonprofit agencies with a more comprehensive process that starts with credit counseling. Counselors assess your overall financial health and give you a recommendation on how to eliminate your debt.

If you qualify for a debt management plan, counselors will work with you to come up with a single, affordable monthly payment that eliminates the debt.

Employer-Based Lending Programs

Another option is to look into emergency loans through your employer. A crop of new companies like HoneyBee, SalaryFinance and TrueConnect have partnered with businesses to provide loans through the employee benefits portal.

These loans typically range from a few hundred dollars to a few thousand. Low credit scores won’t automatically disqualify you. These loans have a much lower interest rate than payday loans.

Be aware that the repayment of these loans may come directly out of your paycheck, which could be a good or bad thing. Not all companies offer this, but it’s worth investigating to see if your employer has partnered with one of these companies.

New Wave of Payday Alternatives

For future reference, If you are caught in another financial bind, don’t seek help from a traditional payday lender. You’ve experienced the pitfalls. Instead, try out a modern paycheck advancement company like Earnin and PayActiv.

On the surface, it seems like these services offer the same conveniences as payday lenders without the predatory tactics.

Earnin allows you to withdraw $100-$500 without fees or interest. They make their money off “tips” which are not required.

PayActiv provides a similar service, only through your employer. They charge a $5 fee to access your paycheck early. Then they recoup their money directly from your next paycheck.


CFPB (2014, March 25) CFPB Finds Four Out of Five Payday Loans Are Rolled Over Or Renewed. Retrieved from

Dickler, J (2018, July 6) The First Thing You Should Know About Saving Money. Retrieved from

About The Author

Max Fay

Max Fay has been writing about personal finance for for the past five years. His expertise is in student loans, credit cards and mortgages. Max inherited a genetic predisposition to being tight with his money and free with financial advice. He was published in every major newspaper in Florida while working his way through Florida State University. He can be reached at [email protected].