Nonprofit Payday Loan Consolidation

By: George Paunov

Four Best Practices for Loan Consolidation

Although nonprofit payday loan consolidation sounds like a great option to help you manage your debt better, it is not always the best choice. These are the steps you need to follow to determine what is best for your situation.

1. Understanding the Impact

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.

2. Run the numbers.

You might consider other options to consolidating. 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 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.

3. Make the Right Choices

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. You must be sure you can make the necessary payments to settle your debt.

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.

4. Avoid Running Up New Debt

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.

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