Caught in an Endless Payday Loan Debt Cycle? Here’s How to Escape!
If you’ve taken out a payday loan and are finding them impossible to repay, don’t fret. There is help available in the form of payday loan consolidation.
Consumers can become caught in the payday loan repayment cycle, in which ballooning interest payments make repayment virtually impossible. Using loan consolidation, consumers can find an escape plan and regain financial independence.
What is Payday Loan Consolidation?
Payday loans are short-term loans, typically offered with a two-week repayment window. The loan is satisfied when paid back in the agreed-upon timeframe.
But, if the consumer can’t repay the loan on time, interest rates may grow exorbitantly. The interest rates may become so steep that the actual principal loan amount is never paid. The consumer keeps paying the interest but never actually eliminates their debt.
With payday loan consolidation, a third-party debt consolidation company will work with the consumer and the original loan company to reduce the payments, the interest, or both. If there are multiple active loans to be repaid, consolidation will combine all of the payments into one monthly bill.
What Approach is the Most Effective for Payday Loan Consolidation?
Effective loan consolidation works to help the consumer pay their share, and the creditors are repaid. Determining which consolidation method works best will significantly depend on the debt each consumer has.
Loans for Debt Consolidation
Taking out a loan to satisfy debt can have advantages but requires many conditions. Ideally, the new loan has a lower interest rate than any of the outstanding debt and has a payoff rate that is reasonable to maintain.
Receiving a loan usually requires a credit check. Ironically, for many applicants, the debt and its effects on their financial standing exclude them from receiving a new loan or a better interest rate.
Plans to Manage Your Debt
Developing a strategic course of action for reducing and repaying debt is also an effective method for managing debt reduction.
After an initial counselling and assessment session, in which all debts, interest rates, and outstanding charges are compiled and organised, the third party will reach out to the creditors to see what repayment agreements they may agree upon.
Once an agreement is reached, the consumer will abide by the conditions for the payoff. In most cases, the payments will be made to the loan consolidation company, which then pays the original creditor.
Debt Settlements
A third option again involves an intermediary for the creditor and consumer. Similar to debt management, a settlement furthermore assesses the consumer’s debt.
Then, the third-party intermediary approaches the creditor(s) with an offer to pay off a reduced percentage of the total debt. Although the creditors won’t be receiving all the debt they’re owed, they will receive a large sum relatively quickly. The debt is transferred from the original creditor to the new intermediary or a partnered financial institution for the consumer.
What are the Top Benefits of Payday Loan Consolidation?
Clearing away debt relieves an unwanted burden. Sometimes, consumers don’t realise how much debt has weighed on them until it’s eliminated.
Reduce the Complexity of Your Repayments
Debt consolidation helps the repayment of loans in several ways. The primary benefit is organising the various bills, fees, interest rates, and late charges.
Creating a streamlined approach to paying off debt helps keep track of payments. When the plan is followed correctly, the debt seems to melt away.
Enhance Your Credit Score
Defaulting or falling behind on loans is disastrous for credit scores. While in the loop of repayment with sky-high interest rates, real progress on the principal amount has yet to be made, so credit scores remain stagnant or in decline.
Once a plan of action in the form of a loan consolidation takes shape, the monthly payments begin to make a difference between the debt amount and the credit score. As the debt is cleared, the credit score will continue to rise—a win for everyone.
Reduced Interest Rates
Interest rates are often one of the primary issues regarding being stuck in a payday loan cycle. When the interest rate is so high that the payments don’t bring the debt down, the consumer will never escape the debt.
Consumers can improve their debt repayment process by consolidating payments and interest rates.
Less Stress Regarding Your Finances
Americans seem to be filled with stress lately, much of it directly related to money concerns. When debt is added to the daily grind, pressure can erode people’s health and well-being.
Reducing stress is a positive step for everyone. By taking positive actions to eliminate a stressful condition in a person’s life, they are often spurred to continue the trend into other parts of their lives.
Settle Your Loan More Promptly
Of course, the most significant benefit of loan consolidation is clearing the debt. Consolidation often creates a set timeframe for the payback process, usually shorter than the existing debt payment schedule.
This countdown can help some consumers to manage their stress, as mentioned above. Although the comprehensive plan may take a few years, loan consolidation is a path to financial freedom.
What Substitutes Exist for Consolidating Payday Loans?
There are, of course, options for managing debt. Some consumers may opt to handle the communications and settlement process themselves. There are also some options that only an individual can apply for.
- Apply for an individual loan- A consumer can approach a lending institution to secure a loan to repay the initial debt. Securing a reasonable interest rate for payback should be a primary concern.
- Ask for a payment plan- Consumers can work with their creditors to develop a reasonable repayment plan. Some companies may be unwilling to work with individuals and require a third-party intermediary.
- Develop a better credit score- If a low credit score obstructs processes to repay a loan, consumers can work with credit builders or credit counsellors to repair credit scores. This may be a longer-term debt repayment process, but it can also fortify an individual’s financial standing.
- Apply for a no-interest balance transfer credit card- Some credit cards will offer balance transfers for new applicants. The transfer includes a grace period of no interest applied to the balance. During this time, a consumer could make payments that affect the principal amount of the debt.
- Choose bankruptcy as a last resort. Filing for bankruptcy will remove debt. However, it will also submerge credit scores and the ability to secure loans, credit cards, mortgages, etc. Bankruptcy penalties are usually lifted after seven years. However, there can be some long-term effects if the bankruptcy needs to be adequately planned.
When Would be the Ideal Time to Consolidate Your Debt?
Debt consolidation is a positive step but should be considered carefully and managed with professionals whenever possible. Consolidation should be regarded as when
- Credit scores are too low to buy or receive loans.
- Financial changes are necessary to move forward in life.
- Debt amounts have become overwhelming.
- Buying and spending habits are significantly curtailed.
- Retirement planning has been interrupted.
How do Debt Consolidation Companies for Payday Loans Operate?
Most loan consolidation companies take one of two approaches to tackle consumer debt.
Loan Settlement or Management
The loan consolidation company will work with the original creditor to develop a repayment plan to which the consumer can agree. The repayment can either go to the original creditor or the consolidation company, which then pays the original creditor.
Consolidation Loan
Option number two involves the debt consolidation company authorising a loan to the consumer. The loan covers the debt to the original creditor; the consumer pays the loan off to the consolidation company.
How to Locate Reputable Organisations that Consolidate Payday Loans?
It’s essential to check the reputation and longevity of the institution supplying the loan. Working with a less-than-reputable company can result in more financial problems for the consumer.
Secured or unsecured- If a loan is granted, it’s best if it’s an unsecured loan, meaning the applicant doesn’t have to put up any of their property or assets as collateral.
Reasonable interest rate- High-interest rates won’t help the repayment process.
Affordable payments- Payments need to work around the consumer’s current status.
Reasonable terms- Unreasonable penalties or fees can make the debt process worse.
Comfortable repayment timeline- An unreasonable timeline sets a consumer up for failure.
Caught in an Endless Payday Loan Debt Cycle? Here’s How You Can Escape!
Falling behind on bills can quickly become a compounding set of problems. By approaching a loan and debt consolidation service, you’ll receive more than a helping hand.
Working with the loan professionals at Real PDL Help allows consumers to understand their choices for rescuing their credit scores and financial future. Contact us today and see how loan consolidation can transform lives.
