Payday Loans Debt Consolidation

Should You Consolidate Payday Advances? How does It Affect Your Credit?

There are so many methods and programs available out there to consolidate payday advances, but it is very important for you to keep in mind that there are certain pros and cons associated with all such programs. A general conclusion is that though they can help you get rid of your payday debt problems, they may affect your credit score negatively. However, this is just a general conclusion. If you take care of a few things, you can protect your credit while paying off your payday debts faster.

Home Equity Loan

First of all, it is very important for you to understand that “payday loan debt consolidation” is a very general term, which may apply to different methods and programs. The process does not always require you to borrow a debt consolidation loan from a company or agency that offers such services. In order to consolidate payday advances, you may also choose to pay off your debts by borrowing a home equity loan or by simply taking cash advance from your credit card. The home equity loan seems to be an attractive option, as you can borrow loan at a very low APR because it is a secured loan. You can pay off all your outstanding payday debt balances using the money thus received. As a result, you will be paying just a single very small monthly payment for a certain period of time, which will obviously depend on how much you are borrowing and how much you can afford to repay every month. The biggest risk in this method is that you may lose your home to foreclosure if you start making defaults in a home equity loan. The biggest positive aspect of this method is that it does not only helps you get rid of your debt problems but it also helps in improving your overall credit score provided you do not miss your monthly payments.

Credit Card Cash Advance

A cash advance from your credit card is another option to consolidate payday advances, but this method is also not free of risk factors. In fact, credit card debts are no better than payday debts. The only relief is that credit card still charges a little lower APR as compared to what payday lenders charge. But, before you go for this method, it is very important for you to keep in mind that many states have banned the provision of automatic rollover or renewal of payday loans in case of nonpayment by the borrower on the set due date. Therefore, before you choose any debt consolidation program, you are strongly recommended to get yourself educated about the laws regarding payday lending that are applicable in your state. Some states have even made it mandatory for lenders to allow borrowers to make the repayment in small monthly installments if they are otherwise unable to pay off in full through a one-time payment. It is only if you are unfortunate to be living in a state that have done nothing much to protect its consumers from the claws of this type of predatory lending when you should consider options like using credit card cash advances to get rid of the payday debt. As far as its effects on your credit score or credit report are concerned, the same formula applies as it does in case of a home equity loan. As long as you are paying off the monthly outstanding balances on your credit card in full and not just making the minimum monthly payment, there should not be any problem. Though it seems to be an easy option to avoid your actual debt by just making the minimum monthly payments, it will soon push you toward a deeper ocean of debt and will ruin your credit. Here’s an article that explains the dangers of making just the minimum monthly payments on your credit card.

Payday Debt Consolidation Loan

If you do not want to put your home at risk and you do not even have a credit card that can allow you to take the required amount of cash advance, you can choose to borrow a payday debt consolidation loan to consolidate payday advances. Here again, it is important for you to understand that a “consolidation program” and a “consolidation loan” are two different things. Click here to learn the difference between the two. However, whether it is a consolidation program or a consolidation loan, it is very much likely to affect your credit score negatively. It happens because your lenders report to the credit bureaus about your debt accounts as “paid in settlement” or “paid as part of a consolidation program”. The only way to avoid such credit reporting is to get your lenders convinced that they will report to the credit bureaus as “paid in full”. Things will depend on how efficient your debt consolidation company is, especially in negotiating a fair deal for you with the lender.

Overall, if you are thinking about a method to consolidate payday advances, the first thing you should do is to find out the legal provisions as per the payday loan laws applicable in your state. The more you know about those laws, the better you will be able to work out your options. You may also like to note that the majority of payday lenders never report to the major credit bureaus. So, how a consolidation program is going to affect your credit should not be a big concern. Getting out of the nasty cycle of payday debt should be your first priority. Besides that, which option you choose to go for, a strong determination and financial discipline is obviously crucial otherwise you will only keep jumping from one debt problem to another. It is high time you must admit – most of the times, the main reason you fall in debt problems is because you lack that financial discipline.

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Posted in Improving Credit Score, Payday Loans Debt Consolidation | 1 Comment »

One Response to “Should You Consolidate Payday Advances? How does It Affect Your Credit?”

  1. dennis says:

    Pay day loan debt consolidation is the best solution to get rid off the multiple pay day loans. But it can affect your credit score badly if you do not take that extra precaution. If you forward your steps with a little bit of extra care and knowledge of an expert lawyer of this field, you can make your life debt free very easily. It is not a hard and fast rule to borrow the loan amount from the consolidation company; you can get the amount of money from other sources and can get the loan amount consolidated to a single one. If you have a home at your own name, you can to get a mortgage loan against it and can repay your multiple pay day loans. The new loan will be at a very low interest rate because it is a type of secured loan. One risk factor is also there if you will not show a strict financial discipline and you start making defaults in the payments, your home will beat a very high risk. You can even lose your home so a great punctuality in making the repayments is very necessary in this type of loans.

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