You may be currently stuck in a payday loan quicksand looking for possible ways of getting out of it. Chances are that you may believe you are among the unfortunate who are caught in the payday loan debt web without possible escape in view. Well, you may be surprised to know that many Americans are caught on the same web.
An estimated 12 million Americans apply for payday loans each year. It may interest you to know that a large percentage of this number are not able to pay off these loans within the agreed period. If you need help with payday loans, then debt consolidation is something you should try out.
How Payday Loan Consolidation Works
When you consolidate payday loans, they will be rolled up into a single loan that offers you the opportunity to pay lower rates and a more convenient monthly repayment plan. So in simple terms, payday loans consolidation entails single loans, lower interest rates, and an easier repayment plan. Sounds more or less like a payday loan relief but in reality, it is not.
How to Consolidate Payday Loans
If you are planning on consolidating payday loans, there are two ways to go about it – taking a debt consolidation loan or enrolling in a payday loan relief program. You may be wondering how these two work and which one is ideal for you. Let’s find out.
#1. Payday Loan Relief
When a debtor enrolls in a payday loan relief program with a debt counseling firm, the firm performs the role of a mediator between the debtor and the lenders. In a payday loan relief program, debtors do not have to negotiate directly with the lenders. The firm takes over the debt and works out a fixed payment plan over an extended period that would be more convenient for the individual to pay off.
Sometimes, the firm may pay off the loan on your behalf and then come up with a fixed rate that will be easier for you to pay. In this case, your debt is transferred from the primary lender to the dent management company. Before enrolling in a payday loan relief program, ensure you do due diligence in getting information about the authenticity and genuineness of the company. This will help to safeguard you against scams.
A debtor who decides to enroll in a payday loan relief as a way of consolidating payday loan will enjoy the following benefits:
- Fixed Interest rate
- A simplified monthly repayment plan
- Debt counseling from debt management experts
- Possible reduction in the amount to be repaid
#2. Debt Consolidation Loan
This type of loan does not require you to have a mediator that will stand in for you. Rather, the debtor gets a single loan with lower interest and uses it to pay off multiple payday loans. Getting this type of loan will require getting approval from the company giving out the loan. Possible places to get a debt consolidation loan include traditional banks, cooperatives, credit unions, and other lenders.
The most important thing to note while applying for the loan is that the loan amount should be enough to clear off all payday loans. Secondly, the interest rate for the loan must be lower than the combined amount of what you are currently paying for the payday loans. That way, you can save money in the long run and at the same time get out of debt faster.
If you would want to have a higher measure of control over how you pay off your debts, then a debt consolidation payday loan is the way to go. However, it may be tough to get approved for this kind of loan as the lender will evaluate your credit score to determine your creditworthiness. If you are already having problems paying back your payday loan, then, it is safe to assume that your credit score is not at its best so getting a consolidation debt may be challenging.
Benefits of Payday Loan Consolidation
The reason why people may be hesitant in taking a payday loan as a more effective alternative to settling their debt is that they may not be aware of the numerous benefits. Becoming aware of the advantages that come with consolidating payday loans can change the way you view them.
Here are some of the benefits of payday loan consolidation:
- Lower interest rate: the APR of a payday loan is over 400 percent. This high-interest rate makes it almost impossible for people to get out of debt. However, with a payday loan consolidation, you can pay an interest rate that is as low as 8 percent. With a payday loan consolidation, you will be able to save thousands of dollars in the long run.
- Flexible repayment terms: most payday loans are paid back within 2-4 weeks. Little wonder many people are trapped with little or no hope of getting out of debt. However, with debt consolidation, you can negotiate up to a 30 months payment period which affords you more time to pay up. Additionally,
- Fixed monthly payments: the amount to be paid back for a payday loan each month is usually not fixed especially when the debtor defaults on payments. So many fees are added- rollover fees, late payment fees, and others. However, most debt consolidation loans have fixed interest rates making it possible to predict the monthly payments and manage repayment better.
Alternatives to Payday Loan
It is advisable to avoid payday loans because of the high interest they come with. Though these loans are easily accessible, they can land you in a debt web that will be difficult to break out from. Instead of a payday loan, one can consider the following loan options:
#1. Personal Loan
This loan is given by most traditional banks and comes with a repayment plan that is up to 12 months. This type of loan does not require collateral to access and is therefore easy to get. The interest rate is considerably lower when compared with payday loan interest.
#2. Payday Loans Alternatives
These types of loans are typically offered by credit unions. The terms are more favorable than a typical payday loan.
#3. Credit Balance Transfer
Using your credit card to pay off your loans is a more viable alternative than payday loans. Credit card interest rates are quite high but are far lower than the payday loan interest.
Bottom Line
If you are already deep down in debt and you need help paying off your payday loans, then you need to consider debt consolidation.
