Do It Yourself Payday Loan Consolidation
Do it yourself payday loan consolidation isn’t for everyone. A consumer needs to have good credit and a reasonable amount of cash flow for this option to work. The plan won’t work if you see paying off credit cards as an invitation for more spending. A successful debt consolidation plan requires total commitment.
How DIY Debt Consolidation Works
- Make a list of all the debts that you want to consolidate. While it’s best to consolidate only credit cards, it could also include personal loans and medical bills.
- Note the name of each creditor along with the total amount owed, interest rates, and minimum monthly payments.
- One of the three major credit-monitoring agencies (Experian TransUnion or Equifax) will give you a copy of your credit report. Each agency owes one report per 12 months.
- Analyze your income. Is it enough to pay off the debts
- Re-establish (or create) a budget that does not include debt consolidation. It’s your budget.
- You can identify expenses that you can reduce or eliminate (like NetFlix streaming, entertainment, dining out, and recurring donations).
- After paying your expenses, determine how much cash you have left.
Which Types of Debts Can I consolidate?
The easiest way to consolidate debt is with personal loans. A bank, credit union, or online lender can provide a loan sufficient to repay all of your credit card debt.
If the interest rate of the new loan is lower than what you are paying on your credit cards, it makes sense. The interest rate will obviously be lower if you have good credit. But with bad credit, you should expect a high interest rate.
Personal loans are very easy understand. Each month, you only make one fixed monthly payment to the lender. You can expect to improve your credit score if you pay on time.
Credit Card Balance Transfer
You can consolidate several credit card balances into one, zero-interest card by using a balance transfer. This is a simple way to reduce your interest payments and simplify your payments. This however comes with a condition. Your credit score must be at least 690.
Best loans for debt consolidation
1. Traditional lenders
Lenders such as banks and credit unions offer loans that can replace a variety of consumer debts with one loan. Usually, the interest rate is lower. Although debt consolidation loans can work for some people, it is important to fully understand the terms of each lender and the risks that could arise if you miss payments.
Although banks and credit unions can provide unsecured loans, they are selective in who they approve. The interest rates for those with good credit are the lowest. Banks are more expensive than credit unions, so make sure to shop around.
2. Online lenders
Online lenders are often able to approve loans in just a few days. They will also accept borrowers with lower credit scores than banks and credit unions. Attention: Interest rates can be higher.
Storefront lenders and debt consolidation firms are the worst options. They charge higher interest rates and additional fees for loans. Avoid for-profit businesses and carefully read the terms.
Scammers are common in the debt consolidation loan industry. The business has a poor reputation. Be diligent: Avoid credit-repair scams.
3. Home Equity Loans
Home equity loans allow you to borrow against your home equity, usually at lower rates than what you pay on credit card debt.
You will pay a higher rate because your home is the collateral. Equity loans are a way to make predictable, regular payments if you’re comfortable with this. If your home has enough equity and your income meets other credit criteria, you may be able to take out a loan or obtain a credit line. This will allow you to pay off all of your credit card debt and transfer it to a home loan that you can repay over time
4. Ask your family and friends for help
While we don’t know your relationship dynamics, we do know that borrowing from a friend or family member can change your mind.
You must ensure that you have the funds to pay off the loan. Think about what happens if your promises are not kept. You won’t need to meet minimum eligibility requirements and may get a very attractive interest rate.
5. Borrow from Retirement
Borrowing money from an employer-sponsored retirement plan, such as a loan for a 401(k), gives you the ability to use that money to pay your debts. Be aware of the restrictions on retirement account borrowing before you consider this option. You have five years to repay your 401(k) loan fully or you could face tax penalties and early withdrawal.
6. Cash-Out Auto Financing
Cash-out auto financing works in the same way as a cash-out loan refinance: You refinance your vehicle and then use the cash to consolidate your debt
How to Avoid DIY Debt Consolidation Failures
You know what you want to accomplish. Let’s look at what you shouldn’t do. These are common mistakes made when you are consolidating your payday loan debts
Failure to shop around
Consolidation loans should have a lower interest rate than your existing debts. If you are saddled with an unfavorable rate, a lower monthly payment can be achieved by extending the repayment period.
Failing to ask for assistance or advice on debt consolidation
Talk with a professional nonprofit credit counselor and, if applicable, a personal finance specialist from your credit union.
Ignoring your options
With good advice, there are many debt consolidation strategies. You can get secured or unsecured loans, personal loans with low-interest rates, transfer cards with zero interest balances management of debt. You may also debt settlement as an option. The most important thing is to do your homework.
Failing to shop around
After you have identified the best options, find out who is most interested in your business. Your main focus should be to pay the outstanding loans. Therefore, ensure that you work with a company that is willing to offer the best rates.
Failure to complete the program
Don’t be unrealistic about your ability or willingness to follow the terms of your consolidation agreement. You can still keep going, even if you have to make some mistakes. You will be grateful that you kept going.
Failing to address the root cause
Are you choosing debt consolidation due to job loss, divorce, an accident, or a medical emergency? Are you trying to escape the pain of unsustainable spending? You will need more than a consolidation loan in some cases. Professional debt counseling may be helpful to help you confront the fundamentals of your financial decisions.
Failure to follow a repayment plan
You will not be able to pay your debts if you don’t follow a repayment plan. Debt consolidation is the first step towards getting rid of all debt. After you have chosen the best loan at the lowest interest rate, choose the shortest repayment term.
Failing to create an emergency fund
An emergency fund will prevent you from taking more debt in future when an emergency strikes.
When choosing a debt consolidation company, ensure that you read the fine print. If not, you may find yourself into more debts. This is because there are many scammers in the industry who would want to take advantage of your situation.
Partner with a non-profit credit counseling agency
Even if you enjoy other DIY projects you should not take the plunge into debt consolidation without expert advice. This does not mean that you should watch a bunch of YouTube videos. Consolidating debt isn’t as simple as changing a headlight. For advice on how to do it yourself, consult a credit counselor.
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