I needed extra money to pay my rent, so I took out a payday loan for $400.
The payoff amount is $567.91.
I will not be able to pay that much and still pay my bills.
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The monthly payment is $170.45, which I also cant afford.
The total balance will be $2,045.40.
I talked with a consumer credit counselor.
They said not to pay it and let it go to collections.
Im worried that they will call my family.
I dont want them to know.
Is there anything I can do so they wont contact my family?
-A.
Dear A.,
Im afraid you probably cant stop the payday lender from contacting your family.
The lender may already be contacting your family members, as well.
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The rules for these communications likely fall into a gray area.
The Fair Debt Collections Practices Act (FDCPA) is a federal law that governs debt collection practices.
Theyre also prohibited from saying that they work for a debt collector unless asked.
However, the FDCPA only applies tothird-party debt collectors, not to original creditors.
Most payday lenders attempt to collect delinquent loans in-house before they send them to a collections agency.
So odds are the lender that gave you the loan is still trying to collect on it.
Some states have laws that place additional limits on collection efforts.
Perhaps you could ask your credit counselor whether your states laws offer an extra layer of protection.
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Heres where thinking like a bill collector could be helpful.
A collector has one goal, which is to get paid.
The more pressure they exert, the more likely you are to pay up.
Dont play into the shame game.
Pick up the phone when the lender calls so that its clear that they have your correct contact information.
Be firm about your inability to pay right now.
Avoid showing emotion or disclosing details about your personal situation, as it will be used against you.
You could say something vague like: Thanks for letting me know.
Theyve called me too.
Im still trying to get to the bottom of it.
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None of that is technically false.
But as long as this debt doesnt affect them, theyre not entitled to more information.
Im glad you consulted with a credit counselor before deciding to let this loan go to collections.
If you have to choose between rent versus repaying a payday loan, rent is the hands-down winner.
But see to it youve considered all the consequences of defaulting.
Obviously, youve learned the hard way that payday loans are best avoided.
But Im guessing you sought a payday loan because you had no alternative.
So youll need to think about what youd do should you encounter another unexpected expense.
One tactic that sometimes works is to tell the lender youre considering bankruptcy.
Because creditors have to cease collection efforts when you file, they may be willing to settle for less.
No matter what, dont be fooled by the threats you may encounter.
You wont be arrested for this debt, and your SSI benefits cant be garnished.
Most importantly, dont let them convince you to roll this debt into a new loan.
Doing so will only trap you in a neverendingpayday loan cycle.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder.
Send your tricky money questions to[email protected].
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
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