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How Does Payday Loan Debt Consolidation Work?

By May 22, 2022June 24th, 2022No Comments

What Is Payday Loan Consolidation, And How Does It Work?

If you want to know how payday loan debt consolidation work, you are at the right place. Payday loan consolidation is taking out a new loan to pay off multiple payday loans. It happens when you consolidate all of your payday loans into one lump sum payment or take out a new loan with a lower interest rate and use it to pay off your existing payday loans.

What Is The Process of Consolidating a Payday Loan?

The following are some things you need to do to consolidate your payday loan.

Determine the amount owed:

The first step is to determine how much you owe on your payday loans. You can do this by looking at your most recent statements or calling each lender and asking for your balance.

Choose a consolidation method:

There are two main methods of consolidating payday loans: lump-sum payment and a new loan.

  1. Lump-sum payment: With this method, you will take out a new loan with a lower interest rate and use the money from the loan to pay off all of your existing payday loans. This will leave you with one monthly payment to make, which will be at a lower interest rate than your payday loan payments.
  2. Taking out a new loan: With this method, you will take out a new loan with a lower interest rate and use the money from the loan to pay off your existing payday loans. 

Get a consolidation loan:

Once you have chosen your consolidation method, you will need to get a consolidation loan. To do this, go to your local bank or credit union and apply for a personal loan. Be sure to shop around for the best interest rate and terms.

Consolidate your payday loans:

Once you have your consolidation loan, you will use the money from the loan to pay off all of your existing payday loans. It will leave you with one monthly payment to make, which will be at a lower interest rate than your payday loan payments.

Payday Loan Consolidation vs. Debt Settlement

Payday loan consolidation is different from debt settlement. With debt settlement, you negotiate with your creditors to pay less than you owe on your debts. You can do this by negotiating a lower interest rate, waiving late fees, or extending the repayment period. Debt settlement will also harm your credit score.

On the other hand, payday loan consolidation does not involve negotiating with your creditors. Instead, you take out a new loan to pay off your existing payday loans. Payday loan debt consolidation will work to ensure that your credit score is not affected.

Does Payday Loan Consolidation Hurt My Credit?

No, payday loan consolidation does not hurt your credit. It can help to improve your credit score. This is because consolidating your payday loans will leave you with one monthly payment to make, which will be at a lower interest rate than your payday loan payments. Making on-time payments on your consolidation loan will help to improve your credit score.

How Much Does Payday Loan Debt Consolidation Cost?

The cost of payday loan debt consolidation will vary depending on the method you choose and the interest rate of your consolidation loan.

If you choose to consolidate your payday loans by taking out a new loan, you will need to pay the fees associated with the loan, such as the origination fee, processing fee, and closing costs. The interest rate on your consolidation loan will also affect the cost of consolidating your payday loans.

If you choose to consolidate your payday loans by making a lump-sum payment, you will need to pay the fees associated with the loan, such as the origination fee and processing fee. You will also need to pay any early repayment fees your lenders may charge. The interest rate on your consolidation loan will not affect the cost of consolidating your payday loans.

Benefits of Consolidating a Payday Loan

There are several benefits of consolidating your payday loans with a consolidation loan. These benefits include:

  • One monthly payment: Consolidating your payday loans will leave you with one monthly payment to make, which will be at a lower interest rate than your payday loan payments.
  • Lower interest rate: The interest rate on your consolidation loan will be lower than the interest rates on your payday loans. It will save you money over time.
  • Improved credit score: Making on-time payments on your consolidation loan will help to improve your credit score.
  • Reduced stress: Consolidating your payday loans will reduce the stress of having multiple debts to pay each month.

Drawbacks of a Payday Loan Consolidation

There are some drawbacks to consolidating your payday loans with a consolidation loan. These drawbacks include:

You may still owe the total amount of your debt:

Even though you will have one monthly payment to make, you may still owe the full amount of your debt. This is because the interest rate on your consolidation loan may be lower than the interest rates on your payday loans, but you will still need to pay off the full amount of debt.

You may have to pay fees:

When you consolidate your payday loans with a consolidation loan, you may have to pay fees, such as an origination fee, processing fee, and closing costs.

Your credit score may be impacted:

If you consolidate your payday loans by taking out a new loan, your credit score may be impacted. This is because you will have another loan on your credit report.

Alternatives to Payday Loan Consolidation

If you are struggling to pay off your payday loans, there are some alternatives to consolidation that you may want to consider. These alternatives include:

  • Negotiating with your lenders: You can negotiate with your lenders to get a lower interest rate or extend the terms of your loan.
  • Making a lump-sum payment: You may be able to make a lump-sum payment to your lenders to pay off your debt.
  • Refinancing your loans: Borrowers can refinance their payday loans with a personal loan or a line of credit.
  • Consolidating your debts: You may be able to consolidate your other debts, such as credit card debt, with a consolidation loan.
  • Filing for bankruptcy: If you cannot repay your debt, you can consider filing for bankruptcy. This will discharge your debts and give you a fresh start.

What Happens if You Can’t Repay Payday Loans?

If you can’t repay your payday loans, the lender may opt for one of the following options to try and get their money back:

  • Call or email you to try to collect the debt.
  • Report the debt to a credit reporting agency, impacting your credit score.
  • Sue you for the debt.
  • Garnish your wages.
  • Withdraw money from your bank account.

The Bottom Line

Payday loan debt consolidation will work well for people struggling to pay their payday loans. It can help you get out of debt and save money on interest payments. However, it is essential to compare different consolidation options and choose the right one. You should also be aware of the potential negative impact of debt settlement on your credit score.

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Taylor Day