Mary Grace McCormick, Credit Writer
Yes, you can settle payday loans through debt settlement. The process for settling payday loans is very similar to settling credit card debt and can be completed in 2 – 4 years. Depending on the circumstances of your debt (such as debt age, delinquency level, and financial hardship), you may be able to settle your payday loans for as little as 50%. Payday lenders are generally more willing to settle debt if you mention you are considering bankruptcy; lenders would rather get some cash from you than nothing.
How to Negotiate a Payday Loan Debt Settlement:
- Figure out whom to contact: Consult your most recent notice to find out whether you should contact your lender or the collection agency assigned to your debt.
- Decide how you want to settle: You can choose to settle your debt yourself or employ a debt settlement company. If you settle debt on your own, you can avoid the fees charged by a settlement company, typically 15% – 25% of your debt. On the other hand, these companies can bring a level of expertise to negotiations that you would not otherwise have.
- Make a plan to come out ahead: Debt settlement should ultimately save you money. Figure out what settlement you can afford, both as a lump sum and as monthly payments. Make sure you factor in fees from your debt settlement company (if using one) and federal tax on the forgiven portion of your debt.
- Begin Negotiations: Your creditor will counter your first proposal. Depending on their counteroffer, negotiations may take a while. Make sure you only accept a settlement you can afford.
- Get Your Agreement in Writing: When you reach an agreement, make sure you get it in writing through a signed debt settlement agreement letter. This will make it enforceable.
The bottom line is that payday loans can be settled just like any other unsecured debt, but a lot depends on your circumstances. You also need to weigh the risks carefully. You can expect your credit score to drop anywhere from 65 to 125 points when the late payments and debt settlement are added to your credit history. Additionally, your lender can sue you for repayment, and there’s little recourse as long as the statute of limitations for collection remains open (3 – 10 years for most states). Finally, there’s the risk that your lender simply won’t accept a settlement offer. They have no obligation to do so, and only accept about 10% of settlements offered.
If you decide to go ahead with settlement, just make sure you understand how much you can afford and don’t agree to anything you can’t. Then, once you reach an agreement, make sure you get it in writing.
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