Debt consolidation like the newest kid on the block is making waves among people who are working towards getting out of high-interest debts. More people need help with payday loans repayment than ever before because of the high-interest rate that accompanies such loans.
Many financial experts advise debtors to try out payday loan consolidation as an alternative debt repayment strategy. However, people need to understand the tricks behind payday loan consolidation to maximize the perceived benefits.
What is Debt Consolidation?
It is possible to believe that debt consolidation is an easy way to escape the debt crisis but it’s not. While this strategy offers debtors help with payday loans and other debts, there are specific steps to take to ensure the best result.
When debtors consolidate payday loans, multiple debts are merged into a single repayment plan that divides the debts into manageable monthly payments. If you are planning on consolidating payday loans, there are several consolidation programs available with the aim of lowering the overall interest making it possible to pay off all debts within 3-5 years.
Benefits of Debt Consolidation
When debtors consolidate payday loans, they benefit in the following ways:
- Single monthly payment: you don’t have to worry anymore about missing numerous payment dates and accumulating more interest. Consolidating payday loans and other debts makes it possible to merge all payments and have a single repayment plan.
- Faster debt repayment: with a debt consolidation loan, one can get out of debt within 3-5 years. This is fast when compared with how long it can take to offset high-interest debt by consistently paying the monthly minimum.
- Lower interest rate: debtors end up paying less in the long run because of the lower interest rates that debt consolidation loans attract.
Debt Consolidation Vs Debt Management
Debt consolidation and debt management are effective and easy ways of getting payday loan relief. It is easy to believe that both of them are the same thing but they are not. In debt consolidation, the debtor takes out a large loan and uses it to pay off their payday loan and credit card debts. Different traditional banks, credit unions, and cooperatives offer this loan option at a reduced interest rate.
However, getting a debt consolidation loan is not certain. This is because the loan is linked to one’s credit score and debtors with low credit scores may be denied their loan request. This is where debt management becomes a viable alternative.
A debt management plan does not require the debtor to take out any loan. Rather, when one enrolls in this plan which is typically offered by credit counseling agencies, the agency will mediate between the lender and the debtor. Through this mediation, they can arrive at a more convenient payment plan with a lower interest rate.
How to Choose the Right Debt Consolidation Company
Deciding to consolidate your debt is one thing. Knowing how to choose the right debt consolidation company is another ball game on its own. When choosing a debt consolidation company, what are the things you should look out for?
#1. Determine if the Company is Trustworthy
Trust is very essential in deciding to work with a debt consolidation company. Your personal information is confidential and should only be disclosed on the grounds of trust. When you apply for a debt consolidation loan, you will be required to suit specific financial details that would aid in processing your loan request. If you are not convinced that the information you release will be safe, then there is no point in working with the company.
To ascertain that the company you want to work with is genuine, do the following:
- Conduct an online search about the company. A good place to start your search is the Better Business Bureau website. While on this website, check for client reviews about the business. This should give you an idea of how reputable the company is
- Find out if the company has security measures in place to safeguard client’s information
- Ensure that the company is duly registered with the Financial Counseling Association.
- Ask for the proof of registration with relevant bodies where necessary
#2. Find out their Interest Rate
The aim of applying for a debt consolidation loan is to pay off debt at a lower interest rate. As a rule of thumb, the interest rate a company offers for debt consolidation loans should not be higher than the interest the debtor pays on the loans they are trying to consolidate. The ideal interest rate should be lower.
#3. What is the Loan Limit
A debt consolidation loan is ideally big enough to offset all debts that you currently owe. Before signing up with the company, determine the total amount you owe and find out if the company can release that amount of loan to you.
#4. Do you Qualify for the Loan?
Several things play a role in determining if you will qualify for a debt consolidation loan. One of the factors is your credit score. If you have a low credit score, then it may be challenging to get a debt consolidation loan, especially one that does not require you to have a security for the loan. Do well to ask the appropriate questions to sign up with the company.
#5. How much is their Operational Cost
There are specific costs associated with the processing of your loan request. It may be impossible to avoid these additional costs. However, ensure that such costs when added up will be lower than what you are currently paying for your debts as a higher cost will defeat the aim of consolidating your payday loans and other debts.
#6. Loan Terms
A good debt consolidation company will offer convenient loan terms. The monthly payment plan and the associated interest should be spread in such a way that it is easy to pay up. Ensure you negotiate a good loan term before going ahead with the company.
Conclusion
Debt consolidation loans can help you get out of debt faster. Therefore, it is important to sign up with the right debt consolidation company and start your journey to freedom from debt.
