Stuck in a cycle of payday loans? Payday loan consolidation can help you reduce your overall debt and get back on the track to financial freedom.
Payday loans may seem like a fast solution if you need quick cash, but the way they’re structured means a trap of high interest payments, harsh repayment terms, and a seemingly endless cycle of payday loan debt. Fortunately, payday loan consolidation is not only possible, but easier than you think.
How does payday loan consolidation work?
Debt consolidation loans are a type of personal loan that combines multiple high-interest, payday loans into a single loan with a lower interest rate. This reduces the monthly interest payments you need to stay on top of and gives you the ability to pay down your debt more quickly.
When you approach a credit consolidation company, they will first take a look at your credit history and all of the payday loans that you currently have. Then, they will work with you to reduce the interest rates with each of your payday lenders, and put together a monthly payment plan that saves you a significant amount of money in the long run.
Consolidation Programs vs Consolidation Loans
There are two options for consolidating your payday loans.
A payday loan consolidation program will only charge you a flat monthly fee that fits your budget. The payday loan consolidation companies take all the hassle out of paying your current loans, and simply charge you a single monthly payment. They will handle calls from the collection agency, prevent autodrafts from your checking account, and understand which loans are violating the laws in the United States. For most, this is the best form of payday loan relief.
A credit consolidation loan is just that, a loan. It can be secured or unsecured, but must be paid in full at the end of the day. The lender gives better interest rates and repayment period than payday loans. However, you are still responsible for paying that to they payday lenders. In case of a late payment, there may be additional fees depending on the loan terms. This is not the preferred method of debt assistance, but is still better than the high interest loans payday lenders can suck you into.
Benefits of payday loan consolidation
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 optionsâ€¦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.
Is debt consolidation right for you?
Qualifying for a personal loan or a debt consolidation service is great for most who are stuck in these unforgiving, short-term loans. However, not everyone qualifies for this type of debt management program.
Here are a few factors that credit unions and other debt consolidation programs consider when deciding whether to take you on as a client.
Minimum loan amount
The loan amounts typically vary by lender, but the minimum most companies will allow is $1,800. This is far higher than the minimum amount a payday loan company will provide. So, if your total payday loan debt is under $1,000, it might not be worth taking out a much larger loan.
There is a fairly easy workaround, however. There are no penalties for early payment, and you might even save in interest. So you could instantly pre-pay the loan if you have extra cash.
Your credit report
For the most part, anybody off the street can sign up for a payday loan provided they have a bank account. Consolidation loans are unsecured debt, meaning a credit union or lender has no recourse should you chose to default. Thus, any reasonable lender will perform a credit check before approving you for a loan and deciding on your terms.
Most of those in need of payday loan relief have bad credit â€“ that’s simply a fact that any debt consolidation company understands. So if you have bad credit, credit card debt, or a mortgage, that shouldn’t dissuade you from applying for a pay loan consolidation program.
Ability to repay
Your credit report shows your past behavior when it comes to paying your debt. It not only includes your credit score, but all history that has been reported to the bureaus. However, it does not show your current income, savings, or other factors that show whether you’ll be able to repay your debt.
A payday loan consolidation program will ask questions about your income, your employer, and your expenses in order to determine if they believe you can pay back your loan on time. Be sure to cut as many recurring expenses as possible.
How badly you need the money
Don’t wait until you’re getting barraged with collection calls from debt collectors, because payday loan consolidation doesn’t happen overnight. A new loan can take weeks or even months to get approved. So depending how urgent your debt problem is, you may not be able to start your payday loan debt consolidation in time.
Alternatives to payday loan consolidation
If you need payday loan help but 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.
Hire 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.
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.
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.
Becoming debt free
The benefits of being free from payday loans are numerous. Not only is the financial burden significant, but the amount of stress is enough to seriously hurt your health. A payday loan consolidation service or loan can change your life, so look into them today.
Read Next: Payday Loan Consolidation in Texas