What happens when you consolidate?
About Payday Loans
Payday loans usually offer quick access to money that you do not have. They have the benefit of being easily accessible and can be repaid on the borrower’s next payday. However, an individual risks falling further into debt should they fail to repay the loan because of the interest charges increases and there may be late payment fees as well. Debt consolidation is often suggested as a solution of getting out of debt. However, what happens when you consolidate? A better explanation of how debt consolidation programs function will help you understand if this is the best way to turn your situation around.
Escape the Debt Spiral
When you consolidate payday loan debt, you will no longer have to send a number of payments to your creditors. You will only be expected to send a single amount to the payday loan consolidation company. They will then send the money to your lenders on your behalf.
Advantages of Debt Consolidation
Payday loan debt consolidation also offers you favorable loan repayment terms. The debt consolidation company will negotiate for better repayment terms with your payday loan lenders for you. This will ensure that the amount you are expected to pay will be something you are able to fork out, given your cash inflow and expenses. This is a great relief for an individual who may have been previously struggling to make the high repayments expected by the lender(s).
The impact on your credit score after consolidating payday loans may be positive or negative. For a debtor who has previously been lagging behind on payments but successfully managed to clear the debt after joining a debt consolidation program, this will result in an improved credit score. On the other hand, if a debtor continues making late payments or defaulting, this will lead to a lower credit score. Therefore, undergoing debt counseling is recommended so as to find out which option is the best for you given your amount of debt and the situation you are in.
Also, you may look into the details of a debt consolidation program to know which is the one that will best suit you.
Factors to Consider
Such details include the interest rate, duration within which you are expected to clear the debt as well as the amount you should send to the debt consolidation company. Should you anticipate clearing your loan before the expected return date, you should also check if there is a fee charged for doing so. Failing to clear your loan within the period expected leads to more expenses in the form of interest and late repayment fee.
Escaping Debt for good
When you consolidate payday loan debt, the overall amount of debt is expected to decrease. This offers you a chance to pay off the debt with ease within the designated period. Ensure that you use the services of legitimate and credible payday loan consolidation companies. This is because there are various scams that may offer you attractive payday loan consolidation programs, but will end up driving you further in debt when they disappear with your money or impose harsh conditions in the contract which you may have not scrutinized closely before signing.