Payday loan consolidation is essentially the act of taking out another loan or line of equity to pay off several payday loans and ultimately break the vicious cycle of repeatedly re-borrowing higher-interest debt on them. You can do this with either a payday loan itself, such as the cash advance you may have taken out on your last payday, or a payday loan alternative, such as a debit card or e-certification facility. With the latter, all your outstanding balance goes into one payment, which typically has a much lower interest rate than your current debts. In addition, it puts all the debt into one place, which in turn makes managing your money much easier. For many people, however, payday loan consolidation just does not work.
To understand why payday loan consolidation doesn’t work, you need to understand how the whole concept works. When you take out a payday loan from any lender, they issue you a check for the amount you borrowed plus a small fee. Then, you are responsible for repaying that check plus the small fee plus whatever other fees your particular lender adds on. This can make paying back your debt more difficult because many borrowers don’t realize that there are balloon payments at the end of their loans that they must make before they get paid back. Many people also don’t realize that some lenders tack on extra fees like very high interest rates to their initial payday loan, further increasing the chances of not being able to make your minimum loan amounts each month.
When it comes to payday loan consolidation, you basically just take out another loan. This time, however, the loan you take out is a line of equity – and it’s probably the exact same loan you were using to pay off your personal loan earlier. Because it is an equity loan, however, your personal credit score doesn’t go anywhere. So, while your credit score may improve, it will not increase as much as your debt to income ratio. However, this should not deter you from trying to use the payday loan consolidation because of the various debt relief options available.
The biggest advantage to using a payday loan consolidation as a method of reducing debt is that you essentially take out one larger payment. The reason this makes sense is because the payments are lower. Each of these loans costs money, so it stands to reason that the payments should be higher. The problem with debt consolidation loans is that the interest rates tend to be quite high, in turn, adding quite a bit of additional expense onto the loan itself. While you do save money by taking out a consolidation loan with better interest rates than your previous loans, you end up paying that money out in charges.
Many people are under the impression that applying for a payday loan consolidation will force them to give up their credit cards and their checking accounts. While this is true in some cases, there are some borrowers who have access to these types of accounts through the work relationship they have with their current employers. The best way to avoid this type of scenario is to always read the fine print on any contract you sign. While most lenders will allow borrowers to continue to use their credit cards and savings accounts after the consolidation process is complete, this isn’t always the case.
The other concern many borrowers have relates to the ability to make any of the required payments. In other words, how will they be able to repay their consolidated amount if they can’t afford the amount they are being charged? This again is where you have to be careful when researching the many reputable and legitimate payday loan consolidation services. In fact, some of these services require borrowers to have an excellent credit rating in order to get their consolidation loan. If you do qualify for a lower interest rate, you need to remember that in the end you are still responsible for repaying the balance owed on the original payday loans.
Because of this, it is important to only apply to those services that require a no credit check loan. The best companies out there will not allow borrowers to borrow money based upon their financial situation. They will instead only accept applications that meet a simple credit check requirement. Once you have discovered which debt consolidation loans do not require a credit check, you will then want to submit multiple applications to each company in order to maximize your chances of getting approved.
To ensure you get the best deal on your consolidation loan, you will also want to shop around between various payday loan consolidation companies. Each one charges a different fee for their services. In addition, some of these companies charge late fees if you miss a payment, whereas others do not. By comparing the costs of each company’s services you will be able to determine which service will work best for your needs. Remember, you will also want to consider the various fees and charges that may be incurred throughout the course of your repayment. Finally, always make sure that any fees you are required to pay to the debt consolidation company are clearly outlined in the contract before you sign it.