Debt consolidation is the combination of several unsecured debts like payday loans, credit cards, medical bills all into one monthly bill with the illusion of a lower interest rate, lower monthly payment and simplified debt-relief plan. When you consolidate, there’s no guarantee your interest rate will be lower.
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If you have been making up financial shortcomings with payday loans, you know that they are bad news. Many payday loan borrowers find themselves in very bad financial situations thanks to payday loans.
There are ways that you can get out from under payday loan debt. If you are looking for payday loan debt relief, this blog offers some suggestions about what type of payday loan debt relief to look for and some warnings about taking on payday debt.
If you have not been sucked into the payday loan trap, avoid payday loan companies.
If you are not familiar with payday loans, they are short term loans with extremely high interest rates. They are called payday loans because you are expected to repay them on your next payday and are based on your pay stub.
Payday loans are attractive because they generally do not require a credit check.
Payday loan interest rates can exceed 500%. This means that for every $100 you borrow, you repay $500. Payday loan repayment can be extremely difficult, if not impossible and the monthly payments can be expensive.
If you are in the unenviable position of having multiple payday loans, you need to find a way out from under these loans immediately.
Payday lenders are not consistently regulated across all the states. Some states offer payday loan help or will look into predatory practices of payday loan lenders. You may be able to find payday loan relief from your state legal system. Unfortunately the effort to have a national payday loan relief did not make it through the federal legislature.
Experts typically offer five different solutions to pay off these high interest loans. These include paying off short term loans with savings, increasing your available cash, arranging extended loan payments with the lender, finding a debt consolidation loan, and settling the debt. Let's look at each of these.
Most people have to be pretty desperate to take out payday loans and do not have savings to begin with. If you do have savings, paying off these usurious loans is a very good idea.
At that point, you may want to go to non-profit credit counseling in order to learn how to better handle your finances. The credit counselor will help you set up a debt management plan with an affordable monthly payment.
This suggestion assumes that there are places you can cut spending. Most of us have extraneous spending but do not always realize it. You may be able to cut out non-essential spending in order to pay off a payday loan.
Check out some of our where-to-cut-spending blogs for some ideas.
This may work, but it may not. Payday lenders are in the business to make money and allowing you a decreased interest rate is not to their benefit.
It may be worth asking about a lower monthly payment, but read the agreement very carefully. You could end up owing even more money.
A payday loan consolidation program may be your best option. With a payday loan consolidation program, you find a lower interest rate loan and repay the payday loan. You then focus on repaying the loan with affordable monthly payments.
Again, attending credit counseling with a credit counselor could help you stay away from payday loans in the future.
Settling a debt means that you negotiate with a creditor to decrease how much you owe and possibly even the interest rate. You make a monthly payment to the settlement company who then negotiates and pays off each debt with that savings. Payday lenders may be willing to settle if they are convinced you are serious.
You may be feeling desperate enough to stop repaying your payday loan. However, this may not be your best option.
Payday lenders can sue to recover what you owe and that can cause many more financial issues.
Many people signed paperwork allowing payday lenders to access their account. The lender can immediately access your account and remove money.
If there is no money, the attempt will end up with you being charged for insufficient fees.
A payday lender can sue you in court. You can end up with a frozen bank account, a levied account or even wage garnishment.
Check out this blog for more on summons and garnishment.
Now that you understand your options, let's look at the two most reasonable solutions to repaying your payday loans.
Payday loan consolidation programs or payday alternative loans allow you to roll unsecured debts like payday loans, credit card debt, and medical bills into one single monthly payment. This is done by taking out a loan from a payday loan relief company and paying off the debt. You then can pay off the loan.
In order for loan consolidation to work, you must be able to get a personal loan or a home equity loan with a lower interest rate that you are currently paying. Your goal is a lower or more affordable monthly payment.
If you can find a loan that meets these criteria, you may want to take out a debt consolidation loan. Since most loans have a lower interest rate than payday loans, you need a concrete plan to repay the loan and not take out more payday loans.
You may be able to find a debt consolidation company that offers better terms than what you can get from a traditional lender like a credit union. Look carefully at payday loan consolidation companies and check their reviews and accreditation. Always read and understand the fine print.
However, at Pacific Debt, we see many people with failed loan consolidation loans. Without careful assessment, there is the illusion of a lower interest rate, lower monthly payment and simplified debt-relief plan.
When you consolidate, there's no guarantee your interest rates or monthly payments will be lower.
A debt consolidation company might benefit you if you're struggling to keep up with repayments on your current debt. The whole objective of the debt consolidation program is to roll all your outstanding balances into one convenient loan amount.
The benefits of consolidating your debts can be great. You may get the advantage of lower interest rates or cheaper monthly repayments. Some people may even find they have the opportunity to repay their entire debt balances years sooner. Take a look at our Debt Consolidation Loan articles to learn more.
What many people don't realize is that the attractive interest rates advertised by banks are usually reserved for those customers with good and excellent credit. If your FICO credit score isn't great, chances are you'll end up paying higher interest rates, which could mean you don't save any money at all.
If your primary goal is to reduce the amount you have to spend out of your pocket each month to repay your debts, debt consolidation programs may not be the right solution for you. In fact, many people may benefit more from a different type of debt relief program altogether.
How does debt consolidation work?
Debt consolidation companies might benefit you if you’re struggling to keep up with repayments on your current debt. The whole objective of the debt consolidation program is to roll all your outstanding balances into one convenient loan amount.
The benefits of consolidating your debts can be great for some people. You may get the advantage of lower interest rates or cheaper monthly repayments. Some people may even find they have the opportunity to repay their entire debt balances years sooner. Take a look at our Debt Consolidation Loans article to learn more.
What many people don’t realize is that the attractive interest rates advertised by banks are usually reserved for those customers with good and excellent credit. If your FICO credit score isn’t great, chances are you’ll end up paying higher interest rates, which could mean you don’t save any money at all.
If your primary goal is to reduce the amount you have to spend out of your pocket each month to repay your debts, there are times when debt consolidation programs may not be the right solution for you. In fact, many people may benefit more from a different type of debt relief program altogether.
What is debt relief negotiations?
Trying to keep up with your monthly repayment obligations when your financial situation has changed can be a nightmare. If you default on your payments, your credit score is negatively affected. If any of your loans are secured, you could also lose your personal assets if your loans are in default.
Some banks and financial institutions will happily negotiate debt relief payment terms to assist customers during times of financial hardship. If you call your creditors and let them know your financial situation, some of them may agree to payment terms that could ease your budget stress until you find a way to improve your financial circumstances.
If you’ve already fallen behind on your repayments, your chances of being approved for an unsecured debt consolidation loan are slim. Even if you can verify that your monthly repayments will be cheaper and your interest charges will be lower, the lenders usually won’t approve a loan application for a client with average credit scores and accounts with past due payments showing on the statements.
Is debt settlement a better solution than debt consolidation?
Of course, some creditors aren’t willing to negotiate with customers at all or only offer short-term band-aid solutions. Many creditors will simply refer your file to a debt collector to recover their money.
Debt collectors often use aggressive tactics and can make it even harder for you to repay the amounts you owe. What’s more, your original creditors will already have charged late payment fees. Some may also charge penalty interest, which increases your debt levels even further.
In order to really get out of the credit trap and end the constant harassment from creditors and debt collectors, it may be worthwhile for many people to consider using a professional and accredited debt settlement company instead. Most creditors will be glad to negotiate a settlement if it means they’re getting some of their money back.
The key to a successful debt settlement negotiation is to consider your own personal financial situation carefully. Be honest about what you can realistically afford to repay over what time frame and take the time to calculate what impact your negotiations might have on your financial situation.
When negotiating with creditors you should seek a mutually agreeable settlement based on your budget and hardship situation. For example, you might have an original debt balance of $6,000. However, you might have an additional $500 worth of penalties and fees as well as an extra $1,200 worth of interest on top. Your total debt owing is now up to $7,700.
Calling your creditors and negotiating a settlement for 30-60% of the current balance could mean you repay much less debt overall. Be sure to advocate for terms that are comfortable for your situation, as you still need to ensure you pay back the debt amount you’ve negotiated and always get any deal you strike in writing.
If you’re not confident about negotiating for a settlement agreement on your own, feel free to reach out to us for assistance. Our well-trained professionals will happily do all the negotiating on your behalf, which usually means a huge amount of debt and stress relief for you in the end.
Absolutely. Debt consolidation works on most unsecured loans like payday loans and credit card debt. Because you are almost guaranteed to get lower interest rates on a consolidation loan, using one to pay off a payday loan can be a very good idea. Always develop a plan and educate yourself on financial management.
Credit unions can be very good places to look for debt consolidation loans. Credit unions are often more flexible and have better interest rates.
There are some small affects on your credit score. When you apply for a debt consolidation loan, the creditor will ask for a "hard pull" on your credit report. This does temporarily lower your credit score.
If you close revolving accounts like credit cards, your credit score can decrease. It will recover!
As long as you make your payment on time, your credit score will recover. For more about credit scores, click here.
A debt consolidation loan is not reported as such. Therefore it does not affect your credit report as long as you repay your debts on time.
If you are looking into a debt consolidation program to eliminate payday loans, always read the fine print to make sure it will be your best option.
There are far worse events than consolidating debt and repaying the debt on time. Bankruptcy will negatively affect you far longer than debt consolidation.
If you are going to use a payday loan consolidation plan, follow it carefully, otherwise you have just taken out a new loan and new debt.,
Yes. debt management plans are a way to roll all your payday loans and other unsecured debt into one payment. It is not debt consolidation as there is no loan and it is not settlement because you still pay the full amount and full interest rates.
The best way to set up a debt management program is through a consumer credit counseling with a trained credit counselor.
While you are working through the debt management program, you will go through financial management classes to better understand finances. If you have the time to work through this program, it is a good way to get payday loan relief.
You can, although you will have to notify both the bank and the payday loan company that you are doing so. You can also contact the bank and ask to have the automatic draft stopped.
Closing your account will not eliminate payday loans. Instead, the payday loan company may then pursue other actions to collect their money including taking you to court.
Payday loan laws vary from state to state. Check out your state's laws to see if they can offer any payday loan relief.
As long as you are paying on the payday loan, it is not reported to the credit bureaus. However, if you fail to pay, it does get reported and affect your credit score.
If you have fallen into the payday loan trap and outstanding payday loans, you may want to seek a payday loan relief program.have affects
Yes. All the cash advance company wants is its money back plus interest. As long as your consolidation loan has better interest rates and terms than the cash advance, consolidation may be a good option.
Absolutely! We are accredited and we have the client reviews to back up our claims.
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