Payday Loans Debt Consolidation

How To Build A Better Credit History By Consolidating Multiple Payday Loans?

Debt consolidation programs usually damage your credit score, but if you keep certain things in mind and follow the right strategies properly, consolidating multiple payday loans can actually help you build a better credit history. The beauty of the concept of debt consolidation is that it makes even the most impossible looking debts very easy to pay off. The only problem is that when creditors report to the credit bureaus that you are making payments as part of a settlement or negotiated plan, it affects your credit score negatively. But, if you choose the right consolidation program, negotiate with your lenders thoroughly and follow a few more strategies, you can give a significant boost to your credit score. Following is a brief rundown on how to go about it.

Consolidate Debts On Your Own

When it comes to consolidating multiple payday loans, the first thing that is very important for you to keep in mind is that you do not necessarily need to sign up with a third-party consolidation agency for this purpose. You also have an option to obtain a low-rate conventional loan to pay off your multiple payday debts with the proceeds thus received. In this method, you get an excellent opportunity to turn the extremely high-rate payday loan accounts into a single low-rate conventional loan, where the repayment terms are very simple. If you borrow a secured loan, such as a home equity loan, you can easily qualify for a significantly very low rate, but it is important for you to keep in mind that home equity loans require you to put your home as collateral, which can sometimes be very risky, as you may end up losing your home if you fail to make the repayment as per the provisions of the contract. Personal loans are unsecured loans, but they charge a little higher rate of interest, but the rate is still almost nothing as compared to the 3-digit APR that payday lenders charge. There is in fact a third option as well, as per which, you can consider borrowing cash advance through your credit card. Credit card advances charge higher interest as compared to the two conventional loans we just discussed. But, if you are facing difficulty in obtaining a personal (such as because of poor credit) or home equity loan (such as if you do not own a home at the first place), credit card advances may still prove to be a good option because the rates are still much lower than the rates charged for payday loans. No matter which of the three options you choose to go for, you can easily covert your multiple payday loan accounts, where the outstanding balance is growing at a rapid pace with every passing day, into a single loan account, which provides you to take control of your debt situation in an efficient and affordable manner.

Ask Your Consolidation Agency About How The Program Offered By Them Will Affect Your Credit Score

If the first option does not seem suitable for your specific situation or if you are not confident about consolidating multiple payday loans on your own, you can go ahead and sign up with a reputable debt consolidation agency. Do your research thoroughly, such as about the cost of their services, their previous experiences and other such things. Besides all that, you must not forget to ask them how your credit score will be affected if you sign up for their services and start making debt payments accordingly. A reputable agency will contact your lenders and convince them to reduce the rates and to waive off penalty charges but also to report the payments to the credit bureaus as “paid in full”, not as “paid in settlement”. This is the bets way to protect your credit score. In fact, when this agreement is in place, it prepares a strong base for you to give a boost to your credit score by implementing other strategies.

Do Not Make Further Defaults

When it comes to consolidating multiple payday loans, it is very important for you to keep in mind that the amount of payment it requires you to pay every month is something you can easily afford. Always remember, if you start making further defaults, it will put you into a more serious debt trouble. Worse, your credit score will also get damaged. So, make sure you you’re your payments regularly and in a timely manner because timely debt payments contribute to 35% of your credit score. If you do not make any default or late payment for six months, you will see a significant increase in your credit score.

Try To Contribute Extra Amount Of Money Toward Your Debts

While you are consolidating multiple payday loans, you must also keep in mind that 30% of your credit score depends on how faster you are paying off your debts. The faster your overall debt balances reduces, the higher increase you will notice in your credit score. Therefore, you are also advised to implement a strict home budgeting plan that should allow you to save a lot of extra money. Use this extra money to pay off your debts faster. There are two ways to save money – first, by cutting down your expenses, and second, by increasing your income, such as by getting a second job or by working overtime; if you do both, you can bring your finances back on the right track within a very short period of time.

Do Not Use More Than 40% Of Your Available Credit Limit

While you are making payments as part of the plan you selected for consolidating multiple payday loans, you must also be very careful with the use of credit cards. You are strongly recommended not to use more than 40% of your available credit limit. Always remember, you are credit utilization ratio (how much credit you are using against the available credit limit) contribute to 15% of your credit score. Therefore, this strategy will also help you build a more impressive credit history.

Do Not Make Further Enquiries For New Loans

If you are applying for new credit and your loan applications are getting rejected, it also hurts your credit health. Therefore, you are also advised not to make lots of enquiries for new credit within a very short period of time. Even if you do not borrow a new loan, just making a high volume of enquiries for new credit will reduce your credit score.

Overall, when it comes to improving your credit score by consolidating multiple payday loans, you must keep in mind the above things and work on your strategies accordingly.

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