How do I get out of payday loan debt? Find out in 5 steps

posted by in Payday Loans

UPDATE: 1 July 2014 – new rules from the Financial Conduct Authority (FCA) means that payday loan companies:

  • cannot rollover an outstanding payday loan balance more than twice
  • must send the debtor an information sheet with contact details for various debt advice organisations. A copy of this information sheet can be seen here
  • cannot make more than two attempts to deduct money from a debtor’s bank account by means of Continuous Payment Authority (CPA) unless a rollover has been agreed.
  • Must now include a prominent risk warning on all financial promotions.
Payday loans neon sign

We can help you deal with payday loans

When people ask themselves “how do I get out of payday loans?” they’ll often think the answer is to pay one loan off with another. It’s not. This is an all too common problem that we see.

We know being in payday loan debt can be scary. If the repayment date looms and you can’t afford to repay, we can help. Follow these five steps to help deal with payday loans you cannot afford to pay.

Step 1: Don’t panic!

Payday loans are often advertised as a way of funding an unexpected ‘one-off expense’, like a car MOT. But the reality is four in ten people take them to pay for essentials like food and petrol – putting food on the table and getting to work.

A quarter of people take a payday loan to repay other credit. If you’re struggling with payday loan debt – don’t panic! You’re not alone. We can help you get out of debt without taking any more loans.

Step 2: Stop the borrowing cycle

The trap many people fall into is not being able to afford it in the first place, but feeling there’s no way out other than to take out another one…and another then another.

You need to stop the cycle! Constantly taking out loan after loan may seem like a fix to your problems – it’s not. By drawing a line under taking more loans you’ll stop slipping deeper into debt. You can deal with the debt that’s left by following the next steps…

Step 3: Cancel the CPA payday loan payment      

A payday loan is a non-priority debt. That means it should only be paid from money you’ve got spare once you’ve paid priorities like rent, mortgage, household bills, food and living costs. If paying back the payday loan means you’ll be short of money to pay priorities you should stop the money being taken.

When you applied for the loan you gave your card details to set up a continuous payment authority (CPA). This is how most payday loan company take the repayment.

However it’s a direct link to your bank and the payday lender can take the money whenever they want. If there’s not enough money to cover the full repayment they can try again and again.

If the money isn’t in your account you might get bank charges. So if you can’t afford it you should cancel the CPA. It’s easy to do:

  • If it’s the day the payment is due ring the bank asking them to cancel the payday loan payment
  • If it’s 1-5 days away email this template letter to the bank
  • If it’s more than 5 days away send the template letter to the bank by post
  • To keep them in the loop you should send a copy of the template letter to the payday loan company too. Do this after the bank has cancelled the CPA

Still unsure what to do? Read our article how to cancel a CPA on a payday loan. But come back here! There are still more steps to getting out of payday loans debt.

Step 4: Repay only what you can afford

One of the gripes people have over how payday lenders work is over their collection process. The truth is you cannot be made to repay more than you can afford. We can tell you how much that is and crucially we can help you prove that to the payday lender.

The easiest way to do that is to use our Debt Remedy tool.

What is Debt Remedy?

It’s our way of giving free debt advice online, to anyone who needs it. It’s a money management and debt solution tool that works out your options based on your budget. It’s quick, easy to use and you don’t have to give your name.

How do I use it?

  • You put in your income and outgoings
  • It then budgets payments like rent and bills (including arrears) to make sure the most important people and companies are being paid
  • Then it gives you a personal action plan to deal with all your debts including the next steps you need to take

Can I speak to someone?

Sure. If you’d prefer you’re welcome to ring and speak to one of our debt advisors.

Step 5: Live a life without payday loans

You’ve stopped the cycle of borrowing and retaken control. With our expert debt advice and budgeting help via Debt Remedy or on the phone you can manage your outgoings within your income, without the need to take more credit.

We can help you budget for priorities, clear any arrears, budget for future payments and then provide one of a range of debt solutions to manage your debt over the longer-term.

Remember…

Very often people take payday loans because they’re desperate, but there’s a way out. By following the steps above and getting expert debt help from us you can live a life free from payday loan debt.

Tags Payday Loans
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  • Stuart Manson

    I have 6 payday loans. I called my bank on Saturday to cancel the CPA on them, although I’m not sure the guy I spoke to knew what I meant. He did say he has put a stop on 4 of the companies taking money from my account, but said that since 2 of them have yet to take money from my account (first payments due at the end of this month) then he couldn’t stop them as the bank need to know what the sort code and account number the Payday Loan companies use in order to be able to block it.

    I plan on calling my bank again tonight, but do the bank need to know the payment details or should they just be able to stop the CPA?

    • moneyaware

      Hi there Stuart, thanks for posting

      The person you spoke to at the bank should have been able to cancel the remaining two continuous payment authorities. The Payment Services Regulations 2009 allows bank customers to cancel any future payments from their debit card, whether this is a single payment or a series of payments. This is regardless of time frame, and both The Financial Ombudsman and Financial Conduct Authority have recently confirmed this to be the case.

      It may be worth contacting the bank again and asking them to cancel these two remaining CPA on the basis, and mention that they’re able to do so under the act I’ve just mentioned. If they claim this is not true, just politely encourage them to check this with their manager to confirm it is correct. They should be able to cancel the remaining two CPAs without you needing to confirm sort codes and account numbers for them (business name of payday lender should be enough). Also, ask the bank staff member to make a note on their system to say that you’ve contacted the branch and asked for the card payments to be stopped. Ask them to make sure this note is visible to all other departments in the bank.

      If after talking to the bank again, they still refuse to cancel the remaining two CPAs, or the CPA amounts are taken after you asked for them to be cancelled, you should make a complaint to the bank as soon as possible.

      If the bank does not refund the payment after you make your complaint, you can then refer the case to the Financial Ombudsman Service (FOS) once the bank has made their ‘final response’. You may find it useful to speak to FOS for advice before you make your complaint.

      Hope this helps

      Kind regards

      Rachel

      • Stuart Manson

        Thanks, I will give this a go later today

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