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10 Vital Things You Should Know About Payday Consolidation

Henry Githinji

Henry Githinji

Henry plans to be an entrepreneur with his own financial consultancy firm, specializing in in binary options and stock trading. Henry is a day trader and plans to use the capital he makes to launch his business. He plans to build a portfolio that attracts investors through his trading performance.
Henry Githinji

Ten Vital Things You Should Know About payday consolidation

payday loan debt consolidation

payday loan debt consolidation

A payday loan refers to a short-term unsecured loan that is usually applied in between paychecks by individuals who have to meet unplanned expenses as they await their next payday. These loans basically mature on the borrower’s next payday. Payday loans are associated with very high- interest rates. These interest rates, together with hefty fee charges make the burden too heavy for the borrower to bear. Due to their expensive nature, payday loans push the borrower into a vicious cycle of short-term cash advances. To break free from this cycle, borrowers opt for payday loan debt consolidation.

Debt consolidation refers to the process of taking out one loan to pay off other multiple debts. Payday loan debt consolidation provides borrowers with two ways to consolidate payday loans. One way is through hiring a debt consolidation agency which manages all your debts on your behalf and charging for their services. The second approach of payday loan consolidation is where you borrower a loan from a debt consolidation company and then use this loan to pay all your outstanding cash advance loans. Below are things you need to know about payday loan consolidation.

  • Reduce Interest rates
Reduce Interest rates

Reduce Interest rates

Payday loans come with hefty interest rates. This is linked to the fact that they are of an unsecured nature. Lenders fear that borrowers might default in repayment that may lead to loss of their money. By consolidating payday loans, you pile up multiple cash advances into one single debt. With this single debt, you have the advantage of paying an overall lower interest rate compared to paying several individual loans with outrageous interest rates.

  •  Payday loan consolidation companies

At some point in life, some people are bound to go through financial difficulties. Most people approach lending organizations which extend financial aid and they get into the agreement on the interest rates, fees and repayment period. However, you need to be alert as there are many companies out there that are not genuine. Some so-called debt consolidation companies are not even in the consolidation business. These companies extort money from borrowers by charging fees and rates that are unreasonably high. The borrower should, therefore, be very careful by thoroughly checking the websites of consolidation companies, making sure they are licensed before getting into an agreement with them.

  • Penalty charges are waived
Penalty charges are waived

Penalty charges are waived

Upon approaching a consolidation company, the company negotiates on your behalf with the payday lenders that they may reduce the penalty due to delay in payments or waive it off altogether.

  • Single payment every month

Payday loan debt consolidation enables the borrower to make just one payment at the end of every month. This is made possible since the borrower pays a single payment to the consolidation company which then distributes this money to payday lenders at an agreed rate. It saves the borrower the trouble of having to make multiple payments to different lenders every month.

  • Remove lenders from your bank account

In the application of payday loans through an online platform, you receive your money directly to your account. Repayment of payday loans is also electronically done by the payday lender during your pay day. This is a major pitfall as it may force the borrower to get into more debt if there are not enough money in his account. The borrower is then forced to get a bank overdraft to finance other bills. By consolidating your payday loans, you remove aggressive payday lenders from your bank account and you are now left to have control over it.

  • No more collection calls
No more collection calls

No more collection calls

In a case of delay in payments, your lenders will automatically make harassing calls to remind you to make payments. Payday loan consolidation lets the debt consolidation company to answer these calls on your behalf. Payday loan debt consolidation successfully creates a barrier between you and your aggressive debtors.

  • Improve your credit score

Payday loans are expensive, which is why many borrowers do not make payments on time or sometimes default in making repayments. This delay and default have a negative impact on the borrower’s credit score which eventually hurts his creditworthiness. With a poor credit score, lenders may be reluctant to extend loans with the fear that they may not make payments. Payday loan consolidation may help improve your credit score in the long run. By being current with all your debts with a consolidation plan, this will ultimately raise your credit score, hence redeeming you from bad credit.

  • Fees
fees

fees

Consolidation companies charge a fee for their services. This fee is usually a certain percentage of the total outstanding debt that they manage for you. As a borrower who is in dire need to consolidate payday loans, you should thoroughly review their fees before getting into an agreement with them. You should opt for fair and affordable fees that will help you slowly clear your loans instead of sinking you into more debt.

  • After consolidation, you still need to pay

Many borrowers think that by consolidating their payday loans, they are relieved from the legal right of having to pay up. This is not true. Debt consolidation only seeks to make the repaying experience easier for you, reduce your stress and make it affordable for you to slowly clear all your debt. Once you have consolidated your loans using debt consolidation, you should make the necessary payments on time.

  • Alternatives to payday loan consolidation

Payday loan consolidation is a solution for many who are caught in the jaws of multiple short-term cash advances. However, many other alternative borrowing options are available. There are other competing borrowing alternatives that strive to outsmart one another in the lending realm. The borrower should thrive in this competition by checking out what policies actually favor him or her and their financial situation. Alternatives include bankruptcy, taking out a home equity loan or a debt management plan. The borrower should carefully consider these alternatives and choose the best one that suits his needs.  

 

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