Debt Consolidation for Payday Loans
If there is one thing that Americans are good at doing, it is racking up thousands of dollars in debt. The trend is evidenced by the sheer amount of money that is spent marketing credit cards, payday loans, and other debts to consumers who can ill-afford to pay for their high-cost loans. Thankfully, there is a way out of the payday loan trap: debt consolidation.
Consolidating debt
Debt consolidation is the process of borrowing from one person or entity to pay off another person, persons, entity, or entities. If, for example, you have three loans for $500 each, you could choose to consolidate these debts by
- Borrowing $1500
- Paying off the three creditors
- Paying only one payment to the company that lent you $1500
Debt consolidation is beneficial in that it is often less expensive, provides more time to make payments, and makes paying your bills easier because you pay only one monthly bill instead of several monthly bills. Consolidating payday loan debt is common, as the high rates on payday loans are often discounted greatly by the very low cost of a new loan through a debt consolidation program.
How to consolidate payday loan debt
There are several methods for consolidating your payday loan debt into one monthly payment:
Payday consolidation service – A payday loan debt consolidation service will work with your existing creditors to make your debts more manageable. Depending on the service, they may try to work with you and the payday loan company to promise an immediate pay off of your debts in exchange for a reduction in the total interest, fees, and other charges assessed on your account. Alternatively, other services offer a process through which they merely make a new loan to you with favorable loan terms and pay off the creditor in full on your behalf.
Consolidating debts yourself – One of the best methods for consolidating high-cost debt such as payday loans is to finance the debt with less expensive credit. A credit card balance transfer, for example, will allow you to borrow money from a credit card at a promotional rate of 0-5%, or at the full purchase rate of 10-25% per year to pay off your pay day loan companies. While credit card companies do charge a very high rate of interest, credit card fees are nothing compared to payday loans, which have effective annual rates of greater than 1000% or more.
A credit card company is likely to offer you a credit line only if you have decent credit, or have the capacity to pay back whatever you borrow. If you have open credit lines through a credit card company, start first by contacting them in reference for a balance transfer, either through balance transfer checks (which can be made out to your payday loan lenders) or for a balance transfer direct to the payday loan company.
Debt consolidation industry
The debt consolidation industry, much like the lending industry, has its fair share of “bad apples,” or companies that seek to make money from their customers’ financial hardship. The financially astute should always seek first to consolidate their debts by themselves, by borrowing money outside of a debt consolidation company to repay their payday loan bills.
However, if you are in financial hardship to the point where it means you may soon go into bankruptcy, a debt consolidation company will be your best shot at accessing the loan you need to pay off your creditors. They may also be able to negotiate with your creditors to erase part of your debt, which will further reduce your excessive debt burden. As always, never pay an application fee, and seek out a debt consolidation company that works as a not-for-profit agency, as there are many.
