For many stuck in the payday loan trap, payday loan debt consolidation is one of the only ways out. We’ve put together everything you need to know.
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Are you stuck in payday loan debt? Rest assured that you’re not the only one looking for a bit of payday loan relief.
Payday loans are short-term loans that seem like an easy solution when you’re short on cash.
You just need a bit of cash to make ends meet. But then you miss a payment, so you rollover your loan. Or you take a new one. Before you know it, you’ve got multiple payday loans you just can’t pay back.
You’re stuck. It’s called the payday loan trap for a reason.
But you’re not alone…
Did you know…
- Each year, 12 million Americans take out a payday loan
- On average, you’ll pay $550 in fees…just to borrow $375
- The average interest rate on PDLs is 671%
- Lenders in the United States make $6 billion a year in fees
Does that seem fair? No, it sure isn’t.
Fortunately, payday loan consolidation is a way to reduce your debt amount and interest rates.
What is payday loan consolidation?
Payday loan consolidation is exactly what it sounds like. Rolling up all your payday loans into a single one with lower interest rates and better repayment terms.
That’s right. One loan, with lower fees, that’s easier to repay.
There are really two types of ways to consolidate your loans: payday loan relief programs and debt consolidation loans.
Here we’ll cover these two.
Type 1: A Payday Loan Relief Program
A payday loan consolidation program involves working with a firm who will represent you to the lenders. These can be referred to as a payday relief program, a debt settlement program or a debt management program.
They will charge you a flat monthly fee, and take on the liability of paying your lenders.
Sometimes they negotiate with the lenders to reduce fees. Other times, they pay the lenders in advance and are essentially giving you a loan.
Either way, you are given a flat monthly rate, with no interest. You pay the firm, and they deal with your lenders.
It’s extremely important to understand what they are doing behind the scenes. Loan consolidation programs differ, and there are plenty of scams out there. So be careful.
- Help from experts
- Reduced debt amount
- Experts can negotiate better terms
- Simple monthly payments
- Reduced amount owed
- Lots of scams out there, beware
- Only works with certain lenders
Type 2: A Debt Consolidation Loan (Do it Yourself Consolidation)
A debt consolidation loan is a personal loan that you take out to pay back your lenders.
The way it works is simple.
First, you apply for the loan, and get approved. Once approved, you take that cash and pay off your lenders. Now you pay back the new loan.
The benefits of a debt consolidation loan is that you are in complete control – you don’t need to wonder what someone else is doing. On the flip side, you need to understand all the provisions of this loan.
Debt consolidation loans can be hard to get because of the credit check. If you’re in payday loan trouble, you probably don’t have the greatest credit, so it may be tough to qualify.
- Reduced amount owed
- You’re in complete control
- Difficult to qualify
- Need to completely understand loan terms
Benefits of consolidating your loans
If you’re stuck in the payday loan trap, you can most likely benefit from a payday loan consolidation plan. Here are several of the benefits of consolidating your debt.
1) Reduced fees and / or interest rates
Payday loans can have astronomically high interest rates. In fact, often these types of loans have APRs of 300-400%! A typical credit card APR range is 20-30%, so it’s easy to see why so many fall into the trap.
When you use a credit consolidation service, they typically reduce your interest rate to be between 6-30%. That’s hundreds or even thousands of dollars saved over the course of your loan’s lifetime.
Unlike payday loans, which usually must be repaid within two to four weeks, personal loans offer a variety of repayment terms that generally range from 12 to 84 months. You can choose the term that works best for your budget.
2) Flat monthly payments
Most do not realize what happens when they are late on a payday loan, and that’s understandable: the fine print is so confusing even some of the world’s best lawyers have trouble comprehending it. Late fees, high interest rates, rollover options; it’s almost impossible for anybody to understand them
When consolidating your loans into one, a great credit consolidator will package everything up into a plan that’s much easier to understand. They will give you a much more straightforward monthly payment plan, where all you need to do is pay a flat amount each month.
3) Flexible terms of repayment
Unlike most payday loans, a personal loan designed for debt relief will give you some flexibility on the monthly payment amount, the timeframe of the loan, and the other associated components. Most payday loan borrowers will find that a debt management plan is actually quite reasonable compared to payday debt.Back to Top
Legitimate Payday Loan Consolidation Services
In the world of short term lending, you need to watch out for scams. We’ve done the hard work for you and picked three legitimate consolidation companies that can really help you.
DebtHammer offers payday loan relief, and is our top pick for those with debt problems.
The company only works with clients that they can help, and it costs nothing to get a consultation. First, they will take a look at your loan and the payday loan company that issued it.
If it’s a lender they can help with, they will set you up with a 12-month payment plan and walk you through the process of how to work together. They stop lenders from automatically drawing from your checking account, which reduces overdraft fees. Then they will let the lenders and any collection agency the lenders hire know that DebtHammer represents you, and to talk to them.
They do not charge an annual percentage rate – the fee is flat and predictable. If you need payday loan help, get a free consultation from the folks at DebtHammer.
2) Real PDL Help
Real PDL Help is a similar consolidation program that offers a free initial consultation where they assess your loan amount, interest rates and any other unsecured debt you have.
They’ll send you paperwork that includes a payment plan (monthly or biweekly options) and permission for them to represent you to the lenders. They’ll get the lenders out of your bank account and negotiate with them on your behalf. Then, you can stop making your loan payments to the creditors and just pay Real PDL Help via credit card. They also help you with debt collection calls, giving you advice on how to deal with them.
3) InCharge Debt Solutions
InCharge Debt Solutions is third on our list only because they don’t specialize in payday like the other two do. However, if the circumstances are right, they can really help. InCharge is a 501(c)(3) non-profit that offers both credit counseling and debt management programs. They are accredited by the Better Business Bureau.
4) Lending Club
Lending Club is a peer-to-peer lending platform that offers all sorts of loans, including debt consolidation loans. So this would be the do-it-yourself payday loan relief program.
The difference between Lending Club and other lenders, is that Lending Club is peer-to-peer. Meaning that other individuals are deciding whether to lend you money or not. You must have a 650 FICO or higher to qualify (yes, this means a credit check), and Lending Club does a decent amount of vetting applicants and assigns them a grade before it allows individuals to see whether you’re eligible or not.
Unfortunately, the high FICO requirement makes it impossible for most payday borrowers to use Lending Club, but if you can, you’ll likely get lower APRs than other debt consolidation options.
Alternatives to Consolidation
You don’t need to consolidate your loans to get out of payday loan debt.
But if you really need relief from payday loans and you can’t get approved for a personal loan or payday loan debt relief program, there are other debt relief options. Here are a few to consider.
Ask for extended repayment terms
Both storefront and online cash advance companies know that they will not get all of their money back. That’s why the interest rate is so high. So it can’t hurt to call your lender and ask for a repayment plan with reduced interest charges. From their perspective, they’d rather get half of their money than none of it.
Work with a credit counselor
There are people who have dedicated their entire lives to fight payday loan lenders and help get clients debt free. These are called credit counseling services.
Credit counseling services have wide expertise in many areas of personal finance, including credit card debt, mortgages, student loans, unsecured loans and more. But one area they focus on is payday loans and helping people get out of the deadly payday loan cycle. Be sure to do your research to understand whether your credit counselor has experience with payday loan consolidation. They can seriously help your financial situation.
This video by Michael Bovee does a great job at explaining credit counseling.
Additionally, credit counselors stay in tune with guidelines and laws put forth by the Consumer Financial Protection Bureau (CFPB), a government organization that does all it can to fight predatory lenders. To find a local credit counselor, call your local credit unions and see if they have any recommendations.
Talk to legal aid attorneys
Payday loans operate in the gray area of the law, and there are some attorneys that will work with you in order to fight the payday lenders and reduce your debt amount. A competent lawyer will help explain your debt settlement rights and the best way to get out of your payday loan problem.
File Chapter 7 bankruptcy
Note: this should be a last resort. Talk to a lawyer before exploring this option.
Chapter 7 bankruptcy is a legal process that allows you to discharge some or all of your debt. It requires you follow a very rigid legal process, and can result in asset seizures or wage garnishment. It most definitely involves time in court. State law governs bankruptcy, so your options differ by state.
Also, there’s no way to keep a bankruptcy from being reported to the credit bureaus, so bankruptcy will hurt your credit score. So be sure to only use this as your last resort. For more info on filing for bankruptcy, watch this video below.Back to Top
Frequently Asked Questions
Short answer is yes. But it is no silver bullet.
Whether you work with a payday loan consolidation company or take out a loan, you are taking a step out of the debt cycle and will likely reduce your total amount. But you still need to stick to the plan. Read more here.
Single, straightforward monthly payment
No hidden advance fees
Far lower interest rates
No more unauthorized automatic debits
No ‘gotcha’ fees like late fees and others in the fine print
Little to no harassing calls from collectors
Reduced chance of a lawsuit
You need to avoid any future payday loans
You must follow the advisor’s advice
In summary, assuming you pick a reputable firm to work with, the downsides are minimal. Who loses? The payday loan company. And that’s something we can all celebrate.
If you’re working with a payday debt consolidation company, you’ll make a single payment to that company once or twice per month.
If you’ve taken out a personal loan, it’s up to you to use that money to pay down the lenders. Then you’ll make loan payments until you pay back the new loan.
For payday relief programs / debt management plans, they may or may not need to check your credit report before putting you on a program.
To qualify for a debt consolidation loan, however, you can bank on a credit check being required.
Yes, if done right, any PDL consolidation program should reduce both the total amount owed and the effective interest rate you will be paid. You can ask the firm upfront to show you the before and after amounts and interest rates owed.
Getting Relief & Becoming Debt Free
The benefits of being free from payday loans are numerous. The late fees, interest charges, and other penalties that accumulate can end up being several times the amount that was initially borrowed, leading to a pile of debt that gets harder and harder to replace. Not to mention the hit to your credit score.
And not only is the financial burden significant, but the amount of stress is enough to seriously hurt your health and the well-being of you and your family.
Getting out of payday loans can change your life, and payday loan consolidation programs are the easiest way to get out of the payday trap and back to living the life you were meant to live.
“I owed over $4,000, and half of that was in fees. Thanks to payday loan consolidation I was able to reduce my amount owed to only $200 which I’ve almost completely paid back!”
“My payday loan debt got to the point where I would never pay it back, and I went into extreme depression. My health and family suffered more than I can say. I’m so glad I consolidated my loans and will never go back to the payday loan store ever again”
“Thanks to payday loan consolidation, I was able to reduce my fees to only $200 months. I started saving, working overtime, and was debt free in about 12 months. A huge burden off my shoulders”
- Payday Loan Protections (Consumer Financial Protection Bureau)
- Payday Loans and the Perils of Borrowing Fast Cash (Wharton)
- How to Break the Cycle of Payday Loan Debt (Experian)
- Payday Lending (Federal Trade Commission)