Payday Loan Consolidation: A Way out of PDL Debt

For many stuck in the payday loan trap, debt consolidation is one of the only ways out.  We've put together everything you need to know.

Payday Loan Consolidation: A Quick Intro

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.

At it's essence, a payday loan consolidation plan helps take all of your various payday loans, and turns it into a single monthly payment with reduced fees and interest.

A payday loan consolidation company, also called a debt management service, will first stop lenders from withdrawing from your bank account.  Then, they will provide expertise to determine which lenders they can negotiate with for better terms.  Finally, they will work with you to put together a plan to get out of debt that you can follow.

In this guide, we'll go over all the details of payday loan consolidation and how it can help free you from payday debt. But before we start, let's first take a look at how payday loan debt becomes such a giant problem.

Payday Loans 101

What are payday loans?

Payday loans are short-term loans with terms of 2-4 weeks.  Typically a lender provides $200-1200 in cash and you agree to pay back the loan within a few weeks, plus interest.  Often lenders will require proof of employment in the form of recent paystubs.  Lenders will also either require a post-dated check or bank account information in order to collect their amount owed.

Why are they bad?

In theory, there is nothing wrong with this transaction.  In practice, however, payday loans are deceptively expensive and can trap many people into an endless cycle of debt.  This is known as the 'payday loan trap'.

If you are unable to pay off the loan at the end of the agreed-upon period, the lender will rollover the loan.  Basically, they will issue a new loan in order to pay for the old loan, with new fees and interest charges associated with them.  Additionally, payday lenders might add on late fees that were buried in the fine print.

This ends up with borrowers paying on average an annual percentage rate of some 300%, and up to 700%!  Contrast that to a credit card, which at most charges a 30% APR.  People desparate for cash to pay basic expenses find themselves paying off more interest than amount owed, and this snowballs into more debt than can reasonably be repaid.

This is all complicated by the fact that lenders are incentivized to get borrowers into this trap, hiding terms, late fees, and other 'gotchas' in fine print that even many lawyers have trouble interpreting.

The video below from Pew Trusts does a great job of explaining just how easy it is to fall into the payday loan trap.

How can a payday loan consolidation plan help?

A payday loan consolidation plan, when managed by professionals, involves consolidating all loans into one reasonable monthly payment.  Experts will stop automatic debits from your bank account, renegotiate with the lenders, and stop the harassing phone calls from debt collectors.  You'll still have to exercise financial discipline - saving money where possible, and earning enough to pay expenses and your monthly amount - but the amount owed is far more reasonable.

Read on to learn more about how payday loan consolidation can help free you from the payday loan cycle...

Table of Contents
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    Benefits of Consolidating Payday Loan Debt

    • Reduced debt burden

    • Simple, straightforward monthly fees

    • No more automatic bank withdrawals

    • Improved credit score

    • Lower interest rates

    • No more hidden fees or gotchas

    Payday Loan Statistics

    Number of Borrowers 12 million
    Avg Amount Borrowed $375
    Avg Fees Paid $500
    Med. Income of Borrowers $30,000
    Avg Interest Rate 391%
    Industry Revenue $6 billion

    Helpful Resources

    How does payday loan consolidation work?

    Debt consolidation 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.

    From your perspective, all you need to do is pay a flat rate amount for the number of months that they have agreed to.  It seems simple, but it is imperative that you pay the agreed upon amount.

    Behind the scenes, it's a bit more complicated.  The consolidation company will start by turning off all automatic withdrawals from your checking or savings account.  This forces the payday lender to come to the negotiating table.  Then, the company will review each of your payday loans in-depth, and begin contacting each individual lender to negotiate terms.  Sometimes, they will discover that the lenders acted against laws, or in gray areas of the law, and will get you the difference you are owed.  In other instances, they will negotiate with the lenders to a more reasonable amount.

    Payday loan consolidation companies typically work with hundreds of customers, so they start to know the ins and outs of how each lender operates.  The lenders also know that they are dealing with professionals, so they are more likely to get better terms.

    But again, this all happens behind the scenes.  Most of the time, all you need to do is pay the flat amount.

    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 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.

    Is debt consolidation right for you?

    Qualifying for 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 something a consolidation service will want to take on.

    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 - 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.

    Consolidation Programs vs Consolidation Loans

    For the most part, this article is focused around consolidation programs.  Though consolidation programs and consolidation loans sound similar, they are actually quite different.

    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.

    In conclusion, a payday loan consolidation program is far better than a traditional consolidation loan.

    Frequently Asked Questions

    Payday loan consolidation works for 90% of people who have over $600 in payday loan debt.  In fact, the more payday loan debt that you have, the greater the chance that a payday loan consolidation firm can help you reduce your overall debt burden.

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    Borrower Stories

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    Jeanine D.

    Owed $4,191
    "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!"
    Screen Shot 2019-12-27 at 9.40.14 PM

    George F.

    Owed $8,790
    "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"
    Screen Shot 2019-12-27 at 9.40.22 PM

    Grace B.

    Owed $2,500
    "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"

    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.