Payday loan debt consolidation is often viewed as a scam and can hurt the borrower’s credit score.
This may be true but in other cases, payday loans could offer relief. In some circumstances, debt consolidation may be the best option available to the borrower. When debts are out of control with onerous interest rates and penalties are accruing, it’s obvious you need help with debt and debt consolidation is probably your best option.
What is debt consolidation
A debt consolidation loan combines all your current debts into only one monthly bill with a new interest rate. The debt consolidation loan purpose is to reduce the total interest rate on your debts while reducing the number of repayment bills you need to keep track of every month. Debt consolidation loan can be secured or unsecured. Secured loan consolidations have lower interest rates compared to unsecured ones. Unsecured consolidation loans are only applicable for unsecured debts such as credit card debts and medical bills.
Your monthly payment is based on the amount of your overall payday loan debt in addition to what you are able to pay. Ultimately, payday loan debt consolidation can free you from the multiple payday loan payments you that you can’t really afford, by creating a plan with a single and most importantly – affordable payment.
Debt consolidation companies
Debt consolidation companies will pay off all debts and will usually lower the interest rate and extend the maturity of the debt, giving the borrower more time to repay. Whilst the total amount repayable may or may not reduce, the borrower can take comfort in his ability to meet payment deadlines and no further penalties are accrued. In some cases, the total amount due will actually fall, allowing earlier repayment.
Consolidating debt may be a good idea in these cases:
High interest rates
A high interest rate piles on more debt. The effect is called compounding. The next time the interest rate is calculated, the amount is worked out from the initial amount owed PLUS the interest from the last period.
High interest rates only make sense in emergencies when repayment is almost immediate.
By consolidating your loans, you’ll be able to save a pretty good amount of money on interest. Owning debts on several credit cards which have been maxed out usually leads to trouble.. Normally, credit cards have interest rates that are very high compared to other interest rates in the market. By getting debt consolidation loan, you’ll get a cheaper interest rate that will allow you to save more money on your monthly payments as well as over the life of the whole loan.
When you struggle with payments, you will need to make compromises with your other bills.
If you are eating into your non-discretionary spending, then this will probably cause problems which will incur other penalties or even get your utilities cut off.
Consolidating is a good option as it will reduce your monthly payments, hopefully to a point that essential bills can be paid.
Improve your credit score
Debt consolidation loans can drastically improve your credit score. Making late payments to your accounts consistently will hurt your credit score quite a bit. If you consolidate your debts into one and stay on top of the payment, however, you’ll feel financially relieved and there’s the real possibility of rebuilding your credit score again.
Debt consolidation loans can give you a number of benefits if you have many outstanding debts. It’s really up to you to use a consolidation company, try and qualify for a debt consolidation loan and get your finances back in order.
Having debts can usually cause a lot of unwanted stress. By consolidating all your debts into one account, you’ll be able to not only avoid bankruptcy but also reduce that stress along the way.
If you are constantly worried about your debts, you won’t be able to function well in other aspects of your life. Taking out a debt consolidation loan will take your mind off your debts and let you focus on other things.
Too many smaller debts
If you have many payments to make and a busy schedule, you can easily make some mistakes along the way. To avoid those mistakes it’s best that you consolidate your debts into one single payment. If the lending company can take the payment by direct debt – even better but be sure to check they took the right amount.
Remember that there are plenty of sharks in the lending business and payday loans consolidation companies are just one of many borrowing options.
Don’t be too happy if they take too little as your interest will be compounding by the next payment. You may want to skip debt consolidation if you don’t get a lower interest rate. It makes little sense to extend the repayment period if the interest rate is not reduced.
You can also always as your friends and family for help, to deal with your financial troubles.
Even though borrowing from people that are close to you can strain your relationship with them, if you need a small amount for a rather short period of time and you are sure that you’ll be able to pay it back, this is a valid option for you. Your should offer to pay a reasonable interest on the money you borrow, since the chances are that whoever is giving you the money is taking it out of their interest-bearing account.