How Payday Loan Consolidation Works

Drowning in Payday Loans? These options can be useful. (iStock)

Payday loans are a short term option for cash strapped consumers. But they are hardly a saving grace.

With exorbitant interest rates and short repayment terms, they often incur more costs than they are worth. They can also cause a vicious cycle of debt that is virtually impossible to break out of, especially for those who live paycheck to paycheck.

If you find yourself taking out loan after loan to cover your debts, or just struggling to pay off payday loans from days gone by, consolidation can help. To learn more about help with payday loans or consolidation loans, go to Credible for some debt relief options.

How Payday Loan Consolidation Works

Consolidating payday loans essentially means taking out another loan – a personal loan, in most cases – and using those funds to pay off any remaining balance on your payday loans.

Since these types of loans usually have much lower interest rates than payday loans, this can save you considerably in the long run. You will also benefit from a longer repayment period and will be able to repay the loan in monthly installments over several years.

A personal loan can also help you with your credit. According to FICO, payment history represents 35% of your credit score, so as long as you make payments on time, you might see an increase in your credit score after several months.

If you want to take out a personal loan, whether you are interested in a debt consolidation loan or something else, go to the Credible online marketplace. Credible can assess your financial situation and find the right lender.

9 OF THE BEST DEBT CONSOLIDATION COMPANIES

In addition to a personal loan, you can also consolidate your personal loan debt using a credit card or, if you are a homeowner, by refinancing your mortgage, through a cash line of credit. Home Equity Loan (HELOC) or through a Home Equity Loan.

“The best way out of the payday loan trap is to consolidate loans,” said Doug Lynam, director of LongView Asset Management in Santa Fe, New Mexico. “Almost any type of conventional loan has a lower interest rate and better terms than a payday loan, whether through a local credit union, a credit card or a home equity line of credit. “

Are you ready to consolidate your payday loan debt? Then compare your options today on Credible.

HOW MUCH DOES A PERSONAL LOAN AFFECT YOUR CREDIT RATING?

If you still don’t know how to manage your payday loans or get out of debt, consider talking to a credit counselor or certified financial planner. They can offer personalized recommendations specific to your situation.

What Are the Cons of Payday Loan Debt Consolidation?

Since consolidating your payday loans can almost always lower your interest rate and lower your costs in the long run, it is rarely a bad idea if you can qualify.

That’s the caveat, however: Not everyone will be eligible to consolidate their loans through any of these strategies.

These loans come with credit score requirements, and HELOC loans and home equity loans require you to own a home. Credit cards are more accessible, but if you only make minimum payments, the interest charges could turn out to be quite significant in the long run.

For these reasons, it is always important to shop around before consolidating debt. Use Credible to compare personal loan rates and lenders or to locate an interest-free balance transfer card to lower your interest charges.

HOW TO GET A DEBT CONSOLIDATION LOAN WITH BAD CREDIT


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5 tips to break the payday loan consolidation cycle

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This story originally appeared on The Penny Hoarder.

A payday loan consolidation can offer quick reprieve from unforeseen expenses or a period of bad luck.

But if you don’t have enough money to pay off the loan on your next payday, you may need to take out another loan or turn your balance into a new loan with interest rates up to 300%.

According to Consumer Financial Protection Bureau, 1 in 5 new borrowers end up taking 10 or more payday loan consolidation

This payday loan cycle can turn a short term loan of a few hundred dollars into a growing mountain of debt totaling thousands of dollars. And when you’re so far behind, it’s hard to get ahead.

If this sounds familiar to you, read on for some practical tips on getting payday loan relief.

1. Reduce your costs

Young woman in the office.
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Cutting back on spending can be one of the hardest ways out of the payday loan cycle if you’re already living on a tight budget and struggling to find ways to save money. If you can’t cut costs, you may need to seek help to temporarily cover some of your costs.

Asking for help takes strength, but it can make it easier to find extra money in your budget, even if it’s only for a month or two. You may be able to access free meals for your school-aged kids or visit a local pantry to get by on a lower grocery budget. College students may be able to seek help from an emergency financial aid fund.

Your church or local community groups may be able to get you temporary help. You can also call 211, Centraide’s referral line for health and social services, which can direct you to services in your area, or visit 211.org to locate resources.

2. Earn more income

Woman with money
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Kisha Howard of Orlando, Florida turned to payday loans when she felt strapped for options to make ends meet. “At the end of the day, if you didn’t have the money to start with, you still won’t have it,” she warns.

To fill her financial deficit, she worked as much overtime as she could to increase her income. “With each pay period, I would decrease the amount of the loan needed until I no longer needed the extra funds and could cover the bills with my income,” she says.

If you have spare time and energy, it may be worth take a concert next door. Consider selling your services as an animal keeper, weed puller, or runner – these side activities don’t require a lot of start-up costs.

3. Use a bargain for payday loan relief

Couple with money
Dean Drobot / Shutterstock.com

Lisa Servon, a professor at the University of Pennsylvania, has studied the payday lending landscape for years, speaking to hundreds of borrowers about their experiences.

She said breaking out of the payday loan cycle often requires some sort of windfall, recalling a woman she interviewed who used her tax refund to pay off her loan. “She really focused her tax refund on the earned income tax credit, paid off the loans, and then really cut spending and monitored her spending,” Servon said.

Getting a huge tax refund isn’t ideal, but if you’re expecting to get some Uncle Sam back, it can help get you out of that payday loan hole.

4. Ask for payment terms

Asian woman talking on her smartphone
miya227 / Shutterstock.com

Thinking back to her payday loan experience, Kisha Howard considers it “a very expensive shortcut.” She says it is “better to budget accordingly and ask for invoice arrangements if necessary.” Businesses work with you when you communicate.

You may be able to negotiate lower bills for essential goods like utilities or set up a interest free payment plan to make larger bills more manageable.

5. Talk about it

Microphone in front of a flag
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“Advocacy and organization are the solution”, declares Maurice BP-Weeks, co-director of Center for Action on Race and Economy.

He compares the payday loan landscape to the housing crisis of the Great Recession. “If you got into the spiral, it’s really not your fault,” he says. “Contact CFPB or your local representative and explain your situation. It is not fair. Businesses should not be allowed to sell these products.

Likewise, it can be helpful to talk openly about your situation with your friends and family. You may be able to provide some valuable advice before someone you know turns to payday loans when the need arises.

A dozen states have banned high-interest, short-term loans, but it’s still easy to get a payday loan – and get trapped in the debt cycle – in most countries.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation for clicking on links in our stories.


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