Can Debt Consolidation Help With Payday Loans?
We are often asked by people whether consolidating debt will impact their credit. It depends on your financial situation as well as the type of consolidation you are considering. While consolidating your debt with a loan may reduce your monthly payments, and offer short-term relief, a longer-term could lead to higher interest rates.
Consolidating payday loans with a personal loan
People usually refer to two types of debt consolidation when they speak of consolidating debt. The first type involves you applying for a personal loan with a low-interest rate and using the loan money to pay off all of your credit card debts. After all your accounts have been paid in full there is one monthly payment that you need to make. The interest rate for a personal loan can be significantly lower than that on a payday loan and the repayment term may be longer so the monthly consolidated payment could be lower.
Does debt consolidation work?
Consolidating your debt can help you manage your financial stress if you have difficulty paying your monthly bills. Consolidating your debt can reduce the likelihood of you falling behind in your payments, which could lead to credit damage. A personal loan can be very beneficial to consolidate higher-interest debt.
Remember that although the personal loan interest rate is lower, the repayment terms can be longer and could result in higher interest payments. If you’re able to do so, you can use the extra money you save to pay more on your loan each month and pay it off sooner. This will help you to save money on interest over the life of the loan.
Consolidating your payday loans with a Debt Settlement Company
You may also hear of debt management plans from debt settlement companies. These programs may allow you to negotiate lower monthly payments from your creditors. The debt settlement company then makes one monthly “consolidated” payment. In turn, the company pays each creditor on your behalf.
A statement may be added to your account by the creditor indicating that the debt consolidation company is managing the payments. Lenders who manually examine your credit report may view this statement negatively. It will therefore reduce your chances of getting other loans.
Although these programs may reduce your monthly bills, you will not be re-paying all the owed amounts. Your creditors will likely report the accounts as either “settled” for less than the full amount or “settled entirely for less than the entire balance.” This will affect your credit score negatively because it shows that you have not paid the account as agreed.
Does debt settlement work?
The debt consolidation company will make payments on your behalf but you are still responsible for making sure that they are paid to creditors on time. Late payments will reflect on your credit score if the debt consolidation company does not make the payment on time. A late payment can have a significant impact on your credit score.
Do your research on the offer before you sign any debt settlement program. You will want to be sure the company is trustworthy and fully understand the terms.
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