Although nonprofit payday loan debt consolidation sounds like a great option to help you manage your debt settlement better, it is not always the best choice. These are the steps you need to follow to determine what is best for your situation.
A debt consolidation loan secures the unsecured loan. Secured debt requires some type of collateral. Collateral might be a home or personal loan asset.
The vast overwhelming amount of payday loan borrowers finish up extending their existing obligations. into new payday loans, paying more costs, and being locked in a debt cycle. Payday loan consolidation is borrowing money to repay numerous payday loans, with the goal of stopping the cycle of re-borrowing high-interest debt.
Nonprofit payday loan consolidation will typically result in a lower interest rate on the outstanding balances. This is the good news. However, the benefits may be lost if you repay the loan over a more extended period.
The more time it takes to pay off the balance, you’ll pay more interest. You will pay interest for the rest of your life. Consolidating your business could prove more costly than you thought.
You might consider other options to consolidate. Contact your creditors directly to negotiate terms and avoid paying consolidation fees.
You should also consider whether all of your loans should be included in the consolidation. It may not be possible. Let’s take, for example, a combination of several credit cards that have interest rates between 16% and 18%, as well as a federal student loan at a 4% rate.
After a nine-month promotional period, you find a balance transfer credit card with a rate of 12.5%. Although your credit card balances can be transferred to this card, it will reduce your rates. However, the 12% rate is much higher than your student loans rate. It is best to keep low-interest loans out of the consolidation.
Consolidation comes in many forms, so make sure you’re fully informed before making a decision. There are many options.
Balance transfer. You can pool your money to transfer it to a credit card or balance transfer account. Consolidating your loans can be done with a line credit such as a home equity loan.
Companies that deal with debt settlement. These companies negotiate with creditors to determine if they will allow you to pay a lump sum less than your total debt. To accumulate the lump sum, you deposit money each month into a savings account. Ask questions when working with these companies:
What length of time you will need to pay. When you pay off your debt, you need to make sure you can afford to do so.
You may be advised not to pay creditors while building the lump amount. You could be subject to penalties and late fees, as well as a decrease in your credit score. Do not work with companies that do not explain the consequences of stopping debt payments.
How much the company will charge. Pay attention to any company asking you to pay fees before you settle your debt. This is against Federal Trade Commission regulations. Avoid companies that make outrageous sales pitches or offer too good to be true.
Find out more about companies by contacting your state attorney general, a local consumer protection agency, or reading reviews on the company site.
A debt management plan. These plans are usually developed in conjunction with your creditors and a non-profit debt counseling agency. They aim to consolidate your loans at lower rates and for a longer repayment term. The agency typically receives a small fee.
You may find it a relief to only receive one bill per month for your debts. This will also allow you to lower your monthly payment or interest rate.
You shouldn’t reward yourself with a lavish spending spree. You’ll soon be debt-free if you keep to a budget and make regular monthly payments.
A local CPA can walk you through the various consolidation options to help you choose the best choice for your finances.
A payday loan consolidation company can help a person who has a lot of payday loans cut down on their monthly payments and, in some cases, the total amount they owe. Putting together multiple payday loans from the same person into one loan is how consolidation works.
They will try to work out a deal with your payday loan lenders. The amount of payday loan relief you get will depend on the deal that the payday loan consolidation program comes to with your payday lenders. Companies that don’t care about you should also be on your mind.
Payday loan consolidation allows and helps debtors to consolidate many high-interest payday loans into a single loan, such as a personal loan or a payday alternative loan.
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Jamie Johnson is a freelance writer with a focus on business and finance who lives in Kansas City. She covers a wide range of personal finance themes, including credit card creation and construction, as well as personal and student loans. Her work has been featured in Business Insider, CO by the United States Chamber of Commerce, GOBankingRates, and Yahoo! Finance, in addition to contributing articles for PaydayNow.