Payday loans sometimes may look like the only solution for a temporary financial crisis. They are easy to apply for, approval is fast and the requested cash is available right after that. Payday loans are now accessible online too. The real problem may come when you have a lot of outstanding payday debts at the same time.
If that is the case, perhaps the best way to avoid further complication is to consolidate your payday debt.
Who qualifies for consolidation of payday debt?
If you are a regular customer of payday loans and you have more than two payday loans at the same time, you may consider consolidating your payday debt. If your credit score is already compromised and it is getting harder for you to control your finances, you qualify as well. Payday loans consolidation is recommended as the cheaper solution compared to servicing multiple installments with different high-interest rates. When you have outstanding payments to several lenders, your monthly payment may be insufficient to cover all your expenses.
People with low incomes and bad credits are the typical borrowers of payday loans. They are usually not qualified for a long-term loan from a bank. There are financial companies specializing in lending payday loans consolidation even if you have bad credit. Their terms and conditions may be more unfavorable compared to conventional lenders, but they may still provide the necessary relief and financial help.
How to consolidate payday debt?
You should find a reputable financial company. Your new lender will require some information from you to run a credit check and assess your application. What you should prepare:
- Information about your income
- Information on your payday loans: how many creditors you have, how many installments you pay, how much is each payment, the interest rate for each payday loan
- Information on your assets and other possibilities for collateral (if required)
All the above will let the lending company prepare a tailored plan to meet your needs. You may be offered a few options:
- Payday Loan Consolidation Settlement
- Payday Consolidation Program
- Payday Consolidation Loan
Payday Loan Consolidation Settlement
This is a settlement with your existing creditors. Payday loans are consolidated in consideration of your budget. Usually, your new lender may facilitate the signing of such settlement and these types of lenders work closely with payday loan companies. They can negotiate a good settlement for you, combining all your outstanding payments into one.
The purpose of settlement is to reduce the amount of your total financial obligation. This way, you would be able to take better control of your expenses and have more available cash. The settlement provides a lump sum to cover the payday debts. The usual term of repayment under payday loan consolidation settlement may be between 2 to 4 years, depending on your financial abilities.
Payday loan consolidation settlement would not require a collateral and your assets would be safe. One thing could be considered as an inconvenience – to get the settlement in place, you may be asked to provide a certain amount in advance (10% or more). It means you should save some money before you consider that option to consolidate your payday debt.
Even if you already have bad credit, the settlement will influence it in a positive manner. But you should be ready for an initial drop in credit score. The settlement is not removing your debts instantly, it is simply a tool for you to arrange for better terms and conditions and to improve your finances.
Payday Consolidation Program
This could be the most preferred way to consolidate payday debt. Regardless of your credit score, a good payday consolidation program may get you back on your feet if you follow it strictly. It aims to reduce the interest rate you are paying now (the combination of interest rates to different payday loan lenders). The longest possible term of such program is 5 years. Your relief comes from the single monthly installment with a lower interest rate.
Payday consolidation program is probably the safest way to get out of debt. In the long run, your credit score will improve gradually. Again, payday consolidation program does not release you from your financial obligations. It is restructuring them by giving you the chance to pay less for a longer period.
Payday Consolidation Loan
Payday consolidation loan is the direct transfer of your payday loan obligation to one new lender. You are borrowing a sum equal to your payday loan debts (plus any applicable charges and fees) and that way your existing liabilities are replaced by only one new liability. Your new interest rate should be significantly more affordable.
Payday consolidation loan is extended for the longest of periods, at times even up to 30 years. Usually, this type of loan is not an unsecured one. A collateral may be required and this is often seen as a disadvantage.
Fees and charges for payday loans consolidation
Most lenders in the market typically waive some fees and charges. You should get fully informed of any applicable additional costs. You should also ask for any possible benefits your new lender may have to offer. Another important option worthy of checking is the early repayment. Your financial status may allow you to pay off your consolidation prematurely and you should be aware if any penalties apply in such cases.
If your finances do not turn better, you should know your options for enrollment. Ask your lender when you could apply for such or if you are allowed to re-negotiate your terms and conditions. Get informed of any possibility that gives you a chance to plan ahead for the best and the worst-case scenarios.
When do you need to consider payday loans consolidation?
Certainly before things get out of control. Untimely payments of payday loans may easily result in letters from debt collectors, constantly trying to cope with unbearable amounts for payment. If your payments leave you with practically no income to rely on, perhaps it’s best to explore your options how to consolidate before it is too late.
What are the steps after the consolidation of payday debts?
Once you have your new payment scheduled and your pile of debts is behind you, it would be to restrain from getting yourself into further debt. It is recommended to repay half of what you owe to your new lender before seeking for another financing. When collateral is at stake under your consolidation, you should be careful not to put it at risk.