Debt Consolidation

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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Payday Loan Consolidation

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.

Payday Loans

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.

How to Pay Off Payday Loans

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.

Use Your Savings

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.

Increase Available Cash

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.

Arrange Extended Loan Payments

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.

Payday Loan Consolidation Program

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.

Payday Loan Relief Programs through Settling a Payday Loan

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.

Failing to Repay a Payday Loan

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.

Bank Account Withdrawals

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.

Being Sued

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.

Debt Relief Options: Payday Loan Debt Consolidation versus Debt Settlement

Now that you understand your options, let's look at the two most reasonable solutions to repaying your payday loans.

Consolidate 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 may be an 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.

Does Payday Loan debt consolidation work?

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.

*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.