Thousands of people across the world are struggling with personal debts such as high credit card balances, mortgages or medical bills. This struggle usually is frustrating and exhausting.
Collection calls are not pleasant either. Not knowing how to pay off multiple personal payday loans puts people under tremendous money pressure.
When it comes to a point where an individual cannot repay his own personal loans, there is always an alternative – debt consolidation loan. Payday loan consolidation is a form of personal loan for people with bad credit.
Consolidating payday loans is a great solution for all debtors with huge debts. However, loan consolidation comes with its risks and therefore there are alternatives to it. Here is some advice on how to consolidate personal payday loans online and get out of debt.
What is payday loan consolidation?
Debt Consolidation Loan is a financial instrument that provides a monthly payment plan for your current personal debts (including payday loans) by combining them into one debt.
Of course, with the new bill comes a new interest rate. The number of bills you have and the combined interest rate is reduced.
When concerning a payday consolidation loan, it is common that they are unsecured, based only on your promise to repay the money.
Still, there is the possibility of taking a secured personal loan with collateral taken out on one of your assets, like when you apply for a signature loan and your signature os held as collateral. This asset can be your house, an automobile, smaller possessions or even other accounts or insurance policies in your name.
What Should I Consider When Taking Payday Loan Consolidation?
Amount – Negotiate for an amount that will allow you to repay all your loans by taking one large loan.
Time – Choose a considerable time to avoid complications during the personal application process.
Interest charge – When you opt for a payday consolidation loan we connect you to money lenders (company) with competitive interest rates and a feasible repayment plan.
Different providers of payday loan consolidation
There are different kinds of payday loan consolidation providers. All of them are financial institutions. It’s up to you to find the best provider for your personal situation and the plan offered to you.
How do Payday loan debt consolidation companies work?
A payday debt consolidation company does not work with traditional deposits but instead repays your old personal debts and then collects the money from you on a monthly basis (as per payment plan) with a new interest rate. Usually, these companies start at the prime interest rate plus 5% for the collection.
They don’t require excellent credit dossier from their clients. They also work with a common credit limit of $25,000.
So if your personal debt exceeds it, you won’t be able to take up a payday consolidation loan from such a company.
Should I see a credit counselor?
If you take out a debt consolidation program you should work with credit counselors who are accredited. A credit counselor can help you draw up a plan with monthly payments and fix your financial situation.
They will work out your secured and unsecured debts, short-term loans, utility bills, checking accounts and bank accounts in order to eliminate your payday debts. To get out of the payday loan trap these relief programs are a godsend to the financially illiterate.
Local and national banks
Another financial institution that offers to help with payday loans debt consolidation are local and national banks. Of course, they work with customers with excellent credit history.
Their interest rates are also high – they too start at the prime rate plus 5%. Such a company tends to require debt repayment within five years. Nevertheless, they work with higher loan limit of amounting up to $100,000.
The third kind of providers is credit unions. Usually, they also require full monthly payment plan for up to 5 years. It is not uncommon for them to work with discounts on the rate prices for their own members.
Their terms and plan include excellent credit history and a loan limit up to $50,000 but it can vary from union to union.
Payday loan lenders
Another avenue for payday loan debt relief is one of the payday lenders. They differ from other types of loan providers (company) because they lend money via short-term unsecured personal loans that don’t require a credit check (soft check may be performed).
Such a company won’t repay your debts one by one. Instead, it will provide a different kind of help with payday loan debt consolidation. The company will give you cash and thus allow you to repay your own debts.
You should keep in mind that such a company works with interest rates exceeding 15% and expects full money repayment within several weeks. The less you earn in one month, the less cash you may borrow.
Peer-to-peer lending services
The next kind of loan consolidation providers is peer-to-peer lending services that specialize in unsecured payday loan debt assistance between individual borrowers. Such companies work with rates from 6% up to 30% or even more depending on your past credit performance. These companies expect monthly payments within 3 to 5 years.
Lastly, there are personal lines of credit. They are usually offered by banks or credit unions to clients with excellent credit history, similar to their usual terms, mentioned above, concerning rates and amount limits. However, they don’t expect repayment within 5 years.
Borrowing from yourself
Before turning to debt consolidation loans, you should always consider the alternative of borrowing from yourself. This means that you don’t borrow from a financial institution. Instead, you use one of the two options:
The first option is the so-called 401k loans. If you have a 401k plan, there is a possibility that you might be able to borrow from it.
This depends on the specific terms of your plan. If it does allow you to borrow, you may not borrow more than $50,000 or half of your vested balance.
These loans are similar to those provided by banks because the expected monthly payment period is no longer than 5 years. On the other hand, there is a similarity with payday lending because no credit check is required (i.e. no hard check).
In other words, you pay interest to yourself. However, there is also a certain disadvantage. If you leave your job, no matter what reason, you are obliged to pay up the entire balance of the loan within 2 months.
Cash-value life insurance policy
The second option is to borrow from a cash value life insurance policy if the terms of your insurer allows it. The interest rate in such cases is typically no more than 6% plus prime.
What are the advantages and disadvantages of debt consolidation?
To decide whether debt consolidation is the right thing for you, you should keep in mind both its advantages and disadvantages.
To simplify the debt repayment schedule, to lower its amount and to even regain some of your former credit reputation – these are the obvious advantages of debt consolidation.
However, be careful not to cancel all your credit cards at once after repaying your debts. This is a common mistake which usually leads to damages on your credit dossier.
Can I take out Unsecured loans?
If you are considering taking out an unsecured loan, you should keep in mind the following advantages and disadvantages:
Of course, there are no requirements for additional guarantees; in other words you won’t, in any case, lose your property – house, car or other if you can’t keep up with the repayment schedule.
On the other hand, there are much higher interest rates because there are no other guarantees for the lenders. Depending on your credit history, the rates might be unmanageable compared to your income.
In that case, you should consider securing the loan with additional assets to keep the rates low. Otherwise, rates might reach up to 36%.
You should also bear in mind the strict requirements of the customer’s credit score. This concerns the interest rates and the maximum amount of loan you could get. In other words, the higher the score, the lower the interest rates and the bigger the loan.
What about Secured loans?
If you are considering taking out a secured loan, here are its main advantages and disadvantages:
To begin with, the loan would definitely be cheaper. Bear in mind that the rates depend on your credit history and the amount of the loan. In any case, an additional guarantee in terms of having collateral tied to the secured loan should mean lower rates for you to pay.
The requirements that the potential borrower of a secured loan is also significantly lower. This means that you could take a loan even far from an excellent credit score.
In addition, the repayment terms of secured loans are much longer. You may be allowed to repay your debt for up to 25 years. At the same time, you may borrow a significantly bigger secured loan.
Nevertheless, taking out secured loans has its disadvantages. The main danger comes from the fact that if you are unable to repay, you may lose some of your assets, your car or even house, for example.
Alternatives to payday loan consolidation
Bear in mind that you should always check the credibility of your potential payday direct lender. Do not approach institutions or companies with a doubtful past should there be a lot of customer complaints or legal prosecution.
The market is large and there is always an alternative cash loan provider with a good reputation. There are also alternatives to itself. Here are some of them:
Credit counseling organizations and companies that are funded by financial institutions.
Part of the services such companies provide are free financial lessons to customers. This type of company can help you with repayment managing, including the option of arranging reduced rates and penalty fees. On the other hand, this may have a negative impact on your credit score because of the inevitable cancellation of credit cards.
Another alternative is debt settlement program. Such programs are administered by intermediary institutions. Their role in the loan process is to provide payday loan help and negotiate for a significant discount off your debt with your creditors.
So for the following four years or so, you would be able to save money in an account with the purpose of a single repayment transaction. This process might also have a negative impact on your credit dossier for the near future.
There are other legal options involving the participation of the court.
These are consumer bankruptcy and liquidation. Bankruptcy help you to reorganize your payment plans. Liquidation is about wiping out unsecured and paying off secured debts. The latter usually requires the selling of properties.
Both procedures require the obligatory participation of your creditors. These procedures have a serious negative impact on your credit history.
Lastly, there are credit card debt balance transfers. The main purpose these operation is to transfer your financial assets from a credit card debt program with higher rates to a cheaper program. Of course, the possibility of such transactions depends on the rules and practices of the financial institution that provides those credit card programs.
In conclusion, it should be noted that debt consolidation loans are a tool for repaying debts with unmanageable interest rates by combining them into a sole payment per month.
The potential borrower should always be careful and act responsibly to achieve reasonable debt relief. Bear in mind that there are potential dangers such as property loss if assets are used as a guarantee for a secured loan. That is why it is strongly advised to consider alternative options and professional financial counseling before deciding to consolidate your debt.
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Can you consolidate payday loans?
Yes, consolidating your payday loans is the best and most suitable way of repaying your payday loans. If you have accumulated debts, consolidating can be a good option. The only thing you need to do is to understand what consolidation is all about.
There are many experts you can seek advice from. The advisors will help you in the evaluation and validation of your loans.
Consolidation will help you pay off your loans and you will only be left with one debt to pay. Payday loans are associated with high interest.
A consolidating company will first find ways to reduce the interest rate that you are being charged. This will also help you avoid additional fees and charges.
With consolidation, you have sufficient time for your to pay back your loan. You will be paying back at a lower interest rate and have more time and reduced monthly repayment installments.
Can you go to jail for not paying back a payday loan?
No. Lenders will list you as a defaulter and may submit your name to the regulatory agency in your state. The regulatory agency may then send your name to other lenders and therefore you will not be able to access loans. You will be listed and other lenders including banks will view you as a defaulter.
Can payday loans be included in Chapter 7?
Yes, you can include the loans in Chapter 7. This chapter gives you the opportunity to write off your unsecured loans including payday loans.
With chapter 7, you will be required to list all your assets and debts. All these will be faced off in the bankruptcy discharge. However, choosing to file chapter 7 should not be the immediate option.
This is because even though you have filed bankruptcy, you still have debts on your back. You will still be required to pay your loans at some point in the future.
How Many Payday Loans Can You Get?
The numbers payday loans you can get can be more than one. This is because the lenders are independent and will deal with you as an independent customer.
They do not ask for your credit history and will offer you the loan based on their current evaluation of your profile with them.
However, it is recommended that you stick to one payday loan at a time. It is difficult to keep track of several loans and you are most likely to lose track.
You will also not be able to pay them all on time and therefore you will have to pay extra fees for late repayment.
Where are payday loans legal?
Payday loans are not legal in all states. Therefore, it is important for you to research before you apply for a payday loan in your state. S
some states that have legalized payday loans include Rhode Island, Tennessee, California, New Mexico, Utah, Wisconsin, Illinois, Washington, Virginia, Nevada, Kentucky, Iowa, Delaware, Alaska, Mississippi, Wyoming, Texas, Nebraska, Louisiana, Florida, Kansas, Indiana, Missouri, Michigan, South Carolina, North Dakota, Minnesota, Idaho, Alabama and Hawaii.
Do your research before applying for a payday loan and you will always find yourself on the right side of the law. You will also find the lender who suits your financial status.
Can you be taken to court for not paying a payday loan?
Yes, but the lender will first send you several reminders so that you are able to communicate back and pay them their due loan. Most of the time, your loan will incur additional interest and an extension of the repayment period.
The lender will require you to confirm that you will pay the loan together with additional late payment charges.
Can they garnish your wages for a payday loan?
No, this is because lenders will only get the required amount as you directed your bank to give. Your wage does not go directly to the lender and therefore the lender has no control over your wage.
Which states have banned payday loans?
There are several states that have maintained their stand on payday loans as being fraudulent.
The states include New Jersey, North Carolina, Arizona, West Virginia, Maine, Arkansas, Vermont, New Hampshire, Georgia, Pennsylvania, New York, Maryland, Connecticut, and Massachusetts.
It is important to know the current laws governing payday loans in your respective state. This will ensure that you only access your loan from an approved agency and keep you away from becoming a victim of fraud.