Payday Consolidation Loans

Loan Advice

Learn more about the one-payment program that may reduce your overall interest amount while helping you resolve your debt.

Debt is expensive – but one way to spend less on money owed is by combing your debt with a payday loan consolidation program. Read on for information about new companies in this growing industry.

What is a payday consolidation loan? It is a program that aims to help you lower your monthly payments by reducing your interest rates. Companies who offer this service may provide similar products for debt from credit cards, medical expenses, and student loans.

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Payday Loan Consolidation

Those who try to use short-term funding to address a long-term expense may have trouble paying back what they owe.

Payday loans are meant to work like this: A loan customer receives a small amount of money ahead of his or her next pay date, and then the money is automatically paid back to the lender on the scheduled pay date.

One issue borrowers sometimes have with this setup is when they still need their paycheck when it arrives on its regular day. The storefront pdl lender automatically withdraws the money, and so the borrower must take out another loan to pay off expenses. This cycle yields increasing interest, and in some cases rollover fees and other finance charges.

A debt consolidation company attempts to break this cycle by providing debt relief through a one-payment program. It is a way to avoid bankruptcy by tackling your debt head-on. Getting your finances back on track should be one of the company’s primary goals for you.

Payday Loan Consolidation Services

Its services may include helping you with your finances, consolidating multiple debts into one monthly payment, reaching out to your creditors for you, and helping you increase your credit rating, so you have better options the next time you need to take out money.

Multiple payments mean multiple fees. This can become unbearable. As you transfer what you owe into one account, you might avoid paying certain late fees, over limit fees, origination fees, and other similar expenses.

The first thing your consolidation company will likely do for you is to stop the drafts from lenders, which can help you instantly avoid the fees associated with not having money in your account when a lender tries to withdraw from it.

What is Needed to Qualify for Payday Loan Consolidation?

Each company has its qualification requirements, but there are a few basic rules that most usually follow:

  • You should have an active bank account
  • You need to have proof that you will receive an income (this doesn’t have to mean you are currently employed, but you will need to show that you have money coming in from somewhere, such as benefits, a pension, etc.)
  • You need an identity card (e.g., a driver’s license) to prove you are who you say you are

Chances are you would have needed to meet that criteria when you applied for your payday loan.

When to Get Debt Assistance

It’s not always easy to pinpoint the exact moment when it’s right to apply for help. If you answer yes to the majority of the following questions, you might benefit from this type of funding:

  • Am I currently suffering from what others would consider a financial crisis?
  • Do my current loans have APRs that are unmanageable?
  • Am I afraid that my current creditors will go after my future paychecks?
  • Do I have multiple outstanding loans?
  • Is the amount I owe more than the amount I can afford to pay?

There are some situations when it makes sense to avoid loan consolidation. For instance, if you are worried about losing your collateral on money you borrowed, your main focus should be paying back that money, so you do not forfeit the item with which you secured the loan.

Compare Consolidation, Loan, and Settlement Options

There are a few different products a debt consolidation company may offer to you, and it is integral to know the differences between these options:

  • Payday Loan Debt Consolidation Program – Instead of providing you a loan to pay off your debts, the company will work with you and your creditors to come up with a plan that lowers your overall interest rate. You’ll pay each month, and your payoff term could be as little as two to five years.
  • Payday Loan Debt Consolidation Loan – You will receive a new loan that you can use to pay off your other debt. This arrangement usually requires you to put up collateral. Your new term could anywhere from one to 30 years.
  • Payday Loan Debt Settlement – The company negotiates with your creditors and figures out a way for you to pay off some of what you owe. You will need to save up a certain amount, so you will be able to pay off the debt in one lump sum.

The program or the loan options should help gradually increase your credit score, but the settlement solution will likely result in your credit score dropping at first (though, it may increase in the future if you continue to make right credit decisions).

Popular Loan Consolidation Services

It helps to throw a wide net when shopping financial products. That way you have a better chance finding the right fit. To get you started, here are some highly rated payday loan consolidation companies:

  • Freedom Debt Relief – They claim to be able to cut debt by up to 50 percent, which means they are equipped to negotiate with your lenders. Or, they can just combine all your outstanding debts, if that’s what you prefer. Whether you are looking for consolidation or reduction, this company has the experience to help. Just know going in that they charge by enrolled debt (as opposed to by settled debt), so you sometimes pay them for combining unreduced debt.
  • National Debt Relief – Solely a debt settlement company, National Debt Relief does not offer a pure consolidation product. If you prefer an outcome that sees you with less overall debt (and perhaps a lower credit rating because of it), this is a trusted company with a good history of helping people out a financial hole.
  • Pacific Debt, Inc. – As long as you have at least $10,000 of debt (they won’t qualify you if you have less than that), Pacific Debt offers fees that are less than many similar options. You should know that the company does not provide a specialized payday loan consolidation product, but general debt relief instead.
  • Debtmerica – Like with the option above, you need at least $10,000 of debt to qualify with this company (and it needs to be unsecured debt in this case). Debtmerica has been featured on CNN, MSNBC, FOX, and CBS. The company and staff are members of the International Association of Professional Debt Arbitrators (IAPDA), and the company is an accredited member of The American Fair Credit Council (AFCC).
  • CuraDebt – Unlike some of the companies on this list, CuraDebt offers a specific product for payday loan debt relief. The company does not operate in every state, and you are required to have at least $7,500 in qualified debt (payday loans qualify).

These five options for debt relief may not work for your specific needs, as you may not meet the requirements to be approved. If this is the case, do not give up hope. There are many other options out there.

The Payday Consolidation Process

When you start working with a consolidation company, they will ask you questions about your current debt, like how many outstanding loans you have, who your lenders are, how much you owe, and what you have already paid.

In some cases, your agent may discover that some of what you think you owe is no longer necessary (e.g., if the debt is not legal). In these cases, the company may remove some of the outstanding debt from what you need to pay.

After gaining a firm understanding of your current financial position, your agent will start reaching out and negotiating with your creditors and eventually presenting you with a new fee structure for your debt.

Choosing a Reputable Debt Consolidation Company

There are some surefire ways to tell if an online company is trying to scam you. First, check and see if the website shows the company’s physical address anywhere. If it doesn’t (or shows a PO Box), then you might be dealing with a fake company.

Once you’re sure it’s a real business, it is time to figure out if it’s worth your time:

  • Look for online reviews – focus on what people say about how expensive the debt solution is.
  • Make sure they don’t charge you beforehand – reputable consolidation companies will never charge you prior to providing a service.
  • Ask around – you’d be surprised how many people you know have had experience with these kinds of companies. They might have a recommendation for you.

As you narrow down your options, be sure to factor in the interest rate ranges. At the end of the day, the best debt consolidation company is going to be the one that costs the least amount of money.

Extended Payment Plan

If your goal is to avoid having your debt handed over to a collection agency, you might benefit from an extended payment plan (EPP), which adds more days between now and your due date. The best EPPs do not require you to pay extra fees or interest.

An EPP is also known as an installment repayment plan. Eight states require storefront payday loan lenders to offer this product to borrowers: Florida, Nevada, Washington, Oklahoma, Illinois, Michigan, Alaska, and Alabama.

If you live in one of those states, contact your lender and ask them if you are eligible for an extended payment plan.

Pros and Cons of Payday Loans

When you work with a storefront pdl lender, your loan agreement might show higher fees than you expected, and the loan might be difficult to pay off while meeting your other expenses. Still, many payday loan users would rather have this credit option available. In many cases, this type of lending is a last resort, and without it, there would be many borrowers with nowhere left to turn for credit.

One payday loan alternative is withdrawing more money from your checking account than you have in your account. This is called an overdraft, and most of the time it comes with an overdraft fee, which is charged by the bank and is usually around $35. In some cases, a payday loan can less expensive than an overdraft fee.

One of the most problematic issues people encounter with short-term loans happens when the funding is used to cover regularly recurring expenses. The small-cash loan is used to treat the symptom of a sizable financial problem – namely, the borrower’s inability to cover all their current cost of living – when what the borrower needs is help from a financial expert, who might be able to suggest lifestyle changes to help the borrower start living within his or her means.

In-Depth Look at the Benefits of Debt Consolidation

Let’s dig a little deeper into the pros of combing all the money you owe into one loan.

  • Reduced interest rate – your interest rate may cost you less money if your restructured payment works out that way.
  • Faster payoff period – when you pay less interest, you can afford to pay off more of the principle, and that means paying off the debt faster.
  • Boost your credit score – as you successfully pay off your debt, your credit score should improve.
  • Let someone else deal with the collection agency – there are laws to protect you from being harassed by a collection agency, but that doesn’t mean they have to be cordial. It can be a relief to let someone else handle them for a while.
  • Simplify your payment schedule – you might find it easier to pay off your debt when you only make one payment instead of several.

Perhaps the best thing about taking care of your debt is the stress relief that accompanies it.

Choosing a Debt Management Program

Sometimes a cash advance consolidation loan is not the right answer, either. If the overlying issue has more to do with poor decisions on the borrower’s part, then a debt management program might be of better service.

A credit counselor can help diagnose issues with your current budget, help you avoid new penalties, and put together a plan on how to pay off what you currently owe.

Debt Relief from Multiple Outstanding Payday Loans

It is not wise to take out too many loans, no matter what kind of credit you are using. It is hard enough to pay back a single loan that has been rolled over or extended multiple times, but it is even more difficult to break the debt cycle if you are responsible for more than a one payday loan.

To avoid insolvency (which can lead you defaulting on the loan), you should consolidate and pay back your debt sooner rather than later. The longer you wait without paying back the principle, the more your loan is likely to grow.

It is also hard to keep track of more than one loan. You risk forgetting to pay back one of your creditors just because you forgot about them.

When you combine your multiple payday loans into one loan, it may be easier to pay off.

Where to Find (or Build Your Own) Loan Consolidation Products

The Internet makes it easy to find consolidation companies who say they can reduce your interest rates by helping you combine your loans through an assistance plan. These businesses will sometimes set a limit on either side of the debt. If you owe more than $25,000, you might not qualify for this service.

If your credit score is high enough, you might be able to qualify for a loan from a bank or credit union. Your score may have been too low when you first acquired your loan, but if you have not missed any payments so far, there is a chance your score has improved since then. If so, ask about a personal line of credit, which is a form of lending usually reserved for this with excellent credit.

There is an emerging industry called alternative lending, which is made up of fintech innovators that use risk assessment models different from national banks. One form of alternative lending is peer-to-peer (p2p) lending, where borrowers work with a group of investors, who might be regular people who want to make money by investing in a loan.

Have you been donating to a 401k plan? Then you might be able to take out a 401k loan and pay off your other loans all at once. There are penalties involved in borrowing from your 401k, but they might end up costing you less overall when you compare it to the cost of stretching out your payday loans. This type of borrowing sometimes does not require a credit check.

Payday Loan Consolidation Alternatives

The most obvious alternative to combining your outstanding loans is to keep paying them off one by one according to the schedule you already have. There are disadvantages in choosing this method (e.g., the interest fees). Here are other options that may be available to you:

  • Contact a bankruptcy lawyer – you might be better off taking the issue to court. Bankruptcy or liquidation won’t erase what you owe, but it might help you rearrange your debts and make them more manageable. You should expect your credit score to suffer if you choose this option.
  • Apply for a balance transfer credit card – while you might not be able to move your pdl payments over to a credit card, maybe you can shift some of your other debts onto a card with a zero percent introductory interest rate.
  • Ask your friends and family for help – if you have been putting it off, it might be time to contact a friendly benefactor.  

Whether you choose one of these solutions or not, it helps to know you have options. It’s also important to remember that as bad as things get, you will not go to jail for not paying back a payday loan. It can be illegal for lenders to threaten you with criminal prosecution for defaulting on your loan. Also, the lender may not be able to garnish your wages to get the money from you, although a collection agency might be able to do that if they file a case against you.

More About Bankruptcy

It is possible to include payday loans in chapter 7, which gives you the option to add unsecured loans. It is elemental to understand that you will still be responsible for paying off your payday loan debt in the future. A Chapter 7 pushes that due date into the horizon while destroying your credit rating in the process.

The Goal: Getting Out of Debt

As you search for the best payday loan consolidation service, always remember that result should be you getting out of debt, and then continuing to restore your credit rating. Ideally, in the future, you will be able to get traditional credit.

What to Do Right Now

You should take care of a few preliminary tasks before you contact a consolidation company. Start by calculating your debt amount by adding together everything you currently owe. Be sure to verify the statute of limitations on the debt. If you have not made a payment for a time (this can vary by state and loan type), you might no longer be responsible for the debt. Be aware, though, the statute of limitations can reset if you are not careful.

Then, check to make sure you meet all the requirements set by the service you are thinking about using.

The company may ask you how much you think you can afford to pay each month for your new consolidated loan. Try to figure out the maximum monthly payment that works for your budget.

What to Do if a Debt Collection Agency Contacts You

If you are already dealing with a payday loan debt collection agency and the statute of limitations has not passed, then you need to act quickly to keep a lousy situation from getting worse. The first thing you should do is send the collection agency a debt validation letter.

The Fair Debt Collection Practices Act (FDCPA) gives you the right to make sure your debt is valid.

Here is a sample of a debt validation letter may start: “I am officially requesting a verification of the debt that you are requesting from me.”

To make sure they take your letter seriously, you might want to mention the FDCPA and remind the collection agency that now that they have received your letter, they are not allowed to try to collect your debt. They also cannot report you credit bureaus until they have complied with the request.

The letter should ask the agency to attach the agreement that shows they have been authorized to collect the debt, the agreement shows your signature agreeing to pay back the debt, and the complete history of payments tied to the account.

If the collection agency chooses to ignore your request and continues to bother you, you can report them to the Federal Trade Commission (FTC).

After you validate the debt, you can start working with a payday loan consolidation company to work on paying off the money you owe.

How Payday Loans Can Lead to Overwhelming Debt

If you use a payday loan correctly, it can be a valuable tool for addressing temporary expenses that you might not otherwise be able to afford. However, some customers struggle with the debt and end up having a bad experience with the product.

Here are the steps that sometimes lead to a “cycle of debt:”

  • The borrower takes out a payday loan to pay off an emergency expense
  • When the borrower’s next paycheck arrives, the lender automatically withdraws the loan money and fees
  • The borrower does not have enough money to make bill payments
  • The borrower takes out another loan

Living loan to loan (or worse, rolling over the same loan repeatedly) means paying a lot of interest, which makes it even harder to get out of a financial hole.

In cases like these, it would be better if the borrower could pay off their expenses with less interest. A payday consolidation loan might be able to help the borrower pay more off the principle each month.

Payday Loan Help

When you are searching for a way to combine all the money you owe into a single payback option, some companies will advertise this as “payday loan help.” Many times, this turns out to be a payday consolidation loan or service.

There are cases where you might find an alternative financial instrument that serves this same purpose. In this case, you should weigh the option against your other choices to determine if it makes sense for you.

You might be tempted to apply for a secured loan, which requires you to put up collateral in case you cannot pay back the money. If you default on the loan, you can lose whatever you secured it with (e.g., your house or car).

Debt Relief Budgeting

Part of the process of getting out of debt is fixing or establishing your budget. As you settle or pay off your payday loans, it is vital that you employ healthy spending habits throughout the process. Otherwise, you may end up back in the same situation all over again.

Many consolidation companies offer payday loan guidance, working with you to help put your finances back together.

One of your goals should be debt resolution, but that is not the end of your journey. After you are finished paying off your old debts, you should be in a better position to avoid falling into a debt trap again in the future.

Have More Questions?

It was our goal to provide enough information about payday loan consolidation services that the reader would be able to get started. If you still have questions, please feel free to send them our way. 

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