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    Payday Loan Consolidation & Debt Relief

    Payday loans are a common form of borrowing nowadays. However, they come with really high-interest repayments. Payday loan consolidation can reduce your debt burden dramatically.

    What is a payday loan?

    Payday loans take on many different forms. However, they are typically short-term loans offered at a high rate of interest.

    For the most part, it is possible to borrow up to $500 and the repayment will be made on the next payday. 

    It is worth pointing out that these short-term loans are usually repaid in a single payment with the borrower's next paycheck. Lenders typically require a post-dated check for the full amount plus interest upfront or electronic authorization to debit the amount from the borrower’s checking account.

    Payday loans can often be rolled over after the due date, by extending the loan. This can provide relief in the form of additional time to repay the loan, but the fees quickly add up. The APR (annual percentage rate) routinely exceeds 100%, many times over. These incredibly-high fees serve as a disincentive, but this is an easy way to get a small amount of money fast.

    Requirements for payday loan applications:

    • Proof of income (pay stub)
    • Valid Social Security Number
    • A bank account in good standing
    • Email address for online correspondence
    • Government-issued ID, driver’s license, or passport
    • In-store applicants ( applicants in the database) are required to have a personal check

    Here's how payday loans work:

    Borrowers must have a bank account in good standing, with a steady income and a valid ID. With payday loans, lenders do not ask invasive questions or conduct extensive credit checks. These loans are based on the lender’s ability to collect the loan + interest, not on the borrower's ability to repay.

    • Complete a quick & easy online application process
    • Enter income information and personal information
    • Submit the application to the payday loan lender
    • Approvals are typically completed within minutes
    • Online applicants receive money on the same day
    • In-store applicants receive money in minutes

    How do you consolidate payday loans?

    Since payday loans are high-interest loans, it is really useful to consolidate your debts to reduce your interest-repayment burden. 

    • Determine the total amount of debt owed on your payday loans
    • Contact a reputable company and get debt counseling advice
    • Try to negotiate reduced interest rates
    • Put together a payment plan to repay your lender
    • Consolidate all your unsecured debt into one monthly payment

    Payday loan debt consolidation pros and cons

    Payday loan debt consolidation is designed to provide relief for high-interest loans. These unsecured debts can be repaid at a much lower interest rate, with a single loan. Since many loans can be rolled over, the interest repayments quickly add up, making it difficult to repay these loans. 

    Pros  

    • Interest rates are lower (5% – 36%) while the APR on payday loans is 400% 
    • Personal loans have a much longer repayment timeframe than payday loans (typically 12 months – 84 months) and there is greater flexibility at play.
    • Borrowers simply have to make the same single monthly repayments to the debt consolidation company
    • Personal loans for payday loans require evidence of the borrower's ability to repay the loan 
    • Once it has been paid off, it cannot be renewed without reapplying for a new loan 

    Cons 

    • Expect a longer repayment term on the loan
    • You are beholden to the debt consolidator’s rules
    • You will likely have to avoid future payday loans
    • They often lead to ‘insufficient fund fees’ in your account
    • If you use a secured debt consolidation loan, your assets are at risk 

    What are the solutions for getting out of payday loan debt?

    Payday loan debt can incur significant interest repayments if you fail to meet your loan repayment in full.

    Research indicates that the average interest rate is 391% when you pay the loan back in 2 weeks. If you don't repay the loan within two weeks, the CFPB (Consumer Financial Protection Bureau) indicates that the interest rate will rise to 521% +.

    Fortunately, there are several viable options for getting out of debt, including lifestyle solutions and financial solutions. 

    Debt Management Programs – DMPs are supervised by credit counselors who determine a debt repayment schedule based on your budget. They may negotiate with your lender to offer payday loan relief. 

    Personal Debt Consolidation Loans – These personal loans are available at relatively low interest rates and can be used to repay payday loans. They ‘bundle debts’ together into a single account with a single lender. 

    Loan Debt Settlement – Indicates that the lender has agreed to accept less than what you owe them as payment in full. Collectors will not be able to harass you for any outstanding money since you have made good on the payment with a loan debt settlement agreement.

    and let's compare and see the differences between these options:

    ComparisonDebt Management ProgramPersonal Consolidation LoansPayday Loan Debt Settlements
    RequirementsMake monthly payments on the programCollateral is neededSave a sum of money before negotiations take place
    Terms2-5 years1-30 years2-4 years
    Paymentsmonthly monthlyOne lump sum payment is made on the payday loan and monthly payments are made on the debt settlement loan
    Credit Scoreimproves graduallyimproves graduallydrops initially
    What it doesIt will lower your interest rate, after negotiations between credit counselors plus your payday loan providerYour debt is transferred from the payday loan lender to a personal consolidation loan lenderReduces your total debt
    It's good when if you want to get out of payday loan debt by making single monthly payments.If you have security you can opt for a secured personal consolidation loanhaving multiple payday loans

    Best Payday Loan Consolidation Companies 2020

    Provider
    Features
    • Financial planning
    • Low interest rates
    • Career coaching
    • No prepayment fee
    • No common fees
    • Origination fees between 2% and 5%
    • Check your rate with an invite code
    • No Prepayment fees
    • Monthly payments you can afford
    • Very fast funding
    • 1.5%-6% Origination fee
    • $10 late payment fee after 15 days past due date

    Other Options for Debt Relief

    Payday loan relief is certainly possible with many other options. If you don't get approved for a personal loan then help is at hand. 

    Legal aid consultation with an Attorney

    If you fall into the ‘low-income’ category, you can approach a legal aid office and request complimentary legal advice. They may represent you for free. These attorneys are particularly useful when it comes to understanding your rights, obligations, and duties vis-a-vis debt settlement.

    They will also discuss all possible solutions for your individual situation.

    Assistance from a licensed credit counseling service

    These professionals can help with all aspects of your personal finances, including debt consolidation, budgeting, and debt management. Credit counseling identifies weaknesses in your financial situation and creates a tailor-made plan to help reduce your debt.

    Only licensed and regulated counselors should be used, preferably in-person counseling as recommended by the FTC (Federal Trade Commission).

    Extended repayment plans

    Several states across the US allow short-term loan providers like payday loan lenders to extend the repayment period. Traditionally, the loan must be repaid by the next paycheck. Extended repayment options allow the borrower to make multiple smaller payments over time. This is costlier, and may incur additional fees.

    Conclusion

    Payday loans are extremely expensive, particularly if you can't repay on time.

    Loan consolidation options can help to reduce the burden and allow you to repay the loan in a single lump sum while repaying the personal loan in monthly installments at a lower interest rate.

    Always consider the interest rates, the term, and the conditions that must be satisfied with various payday loan consolidation options.