How Can You Benefit From Payday Loan Consolidation?
The top performers in our review are National Debt Relief, the Gold Award winner; Freedom Debt Relief, the Silver Award winner; and Pacific Debt Inc., the Bronze Award winner. Here's more on choosing a service to help with payday loan debt, along with detail on how we arrived at our ranking of these services.
Payday loan services offer a way for people to bridge the gap between bill due dates and pay dates. Unfortunately, some customers cannot repay their payday loans and take out new payday loans in order to cover the difference. When this cycle starts, it becomes difficult to break it.
If you've found yourself in this vicious cycle, your best bet may be to consolidate your payday loans into a single loan with a lower interest rate. If you are looking for a loan company that can help you with this, check out our personal loan reviews and our peer-to-peer lender reviews. However, if you are in such debt or your credit rating is so low that you are not able to get a consolidation loan, then payday debt consolidation and settlement services might be your only option.
This is not the best option by far. These programs damage your credit, at least temporarily, and can show up on your financial record. However, in some cases, it's a preferable option to bankruptcy because it allows you to pay off your debts without losing all your assets. For more information on debt and credit-management options, have a look at our articles on debt settlement.
Debt settlement services negotiate with your creditors, including the payday loan lenders, to reduce some of your debt. Some allow you to consolidate your debt down to a single, monthly payment, preferably one with a lower interest rate than what you are paying with each individual creditor. Others take a monthly payment from you, which goes into a trust to pay off any loans the settlement service reached an agreement on.
Payday Loan Debt Relief: What Are Your Options?
Bankruptcy and debt settlement are not your only options when it comes to payday loan consolidation. Here are the main ways to get out of unmanageable debt. Some programs use a combination of these options, especially debt consolidation and debt settlement.
In this case, you hire a company or law firm to contact your creditors to negotiate for forgiveness of part of your debt. In most cases, the program requires you to set aside an agreed-upon amount of money into a trust fund. This money is then used by the debt settlement company to pay off any debts it negotiated down for you. Companies cannot force lenders to negotiate, but they also cannot charge you until a settlement is made. These programs can take up to four years to complete during which time you need to severely control your spending, refrain from using credit and budget strictly. These programs do hurt your credit rating.
Consolidation, of course, means rolling your various debts into a single loan, which you use to pay off the creditors. Naturally, you want a loan with a lower rate than what you were being charged by your creditors. Some of the debt settlement companies in our lineup offer this option, but they first try to negotiate your debt down before taking out a loan.
Debt Management Program
Some companies create a personalized step-by-step plan to help you get out of debt, then enact it for you by taking a monthly payment from you to send to your creditors according to the plan. In this case, the company does not wait to reach a settlement but starts paying off the debts right away, although it may still also negotiate debt reduction. This option does not hurt your credit rating as deeply as other programs do.
Usually, this is your last resort. Bankruptcy absolves you of your debts, but at a high price to your credit and your reputation. You may also lose some of your possessions. There are different bankruptcy options. All involve a legal process, which means hiring a lawyer and going through credit counseling and debtor-education classes.
Regardless of which option you choose, these forms of debt settlement are not ideal. It could be in your favor to research your state's laws governing debt consultation and settlement. You may have other options you can try first. You should also consider finding a financial counselor who might be able to help you create a budget and payment plan you can live with as you pay off the debts. Finally, research strategies for paying off debts. There are several ways you can pay off loans faster without putting in too much in extra payments.
Payday Loan Debt Settlement: Legal Rules & Regulations
The Federal Trade Commission (FTC) has mandated that debt settlement companies follow specific rules. When looking for a payday loan debt consolidation or settlement company, be sure they comply with these laws:
No Advanced Fees
No debt relief company or service may charge any settlement fee before settling your debt. It must settle at least part of one of your enrolled debts before charging fees. However, some companies charge monthly maintenance fees as a way around this law. Be wary of these companies because they can charge fees even if they do not settle your debt.
Before enrolling you in its program, the debt settlement company must explain certain things. In some cases, they may only be able to give a reasonable estimate because much will depend on negotiations, but none should promise a quick and easy solution. After meeting with a debt settlement service, you should understand:
• All costs and all associated fees
• How long the program will take
• How much money you must set aside to pay off creditors once settlements are made
• Your rights with dedicated accounts, if applicable
• The consequences of debt settlement, including its impact on your credit
• That you are still responsible for paying your credits, and you may receive late fees and be sent to collections
Truthful & Substantiated Claims
A company cannot lie about its program, results or the effort it is making in negotiating down your debt. While this should be standard for any ethical company, untruthful claims in this industry are a violation of the law. They should be able to back up any claims they make with statistical fact. For example, if they say the program takes only a year, they should have proof they have helped other customers in similar situations that quickly.
Debt Relief Programs: What Are the Risks?
When a payday loan creditor is calling and making threats, and the interest on the loan piles up, it's easy to grasp at any straw to get out of the debt. However, there are negative consequences and risks to debt settlement and other debt management options.
It adversely affects your credit, perhaps not as much as bankruptcy, but still significantly. It varies by case as well.
Debt settlement does not always mean a large debt reduction – or any reduction. While debt settlement companies will reach out to your creditors, those lenders do not have to agree to negotiate or reduce your debt. Some creditors may find that partial payment is better than none at all. Not all creditors feel this way.
You are paying for a service. Debt settlement is not cheap. You can pay 15 to 30 percent of the amount of your debt in order to have it reduced. As a result, you may only save a few thousand or a few hundred dollars. While the arbitrators generally have some training and may have accreditation, you have just as much power as they do to negotiate your debt yourself. In fact, if your debt is not substantial, some experts suggest you contact your creditors yourself first.
Debt consolidation loans have the usual effects and risks of any loan, including the consequences of defaulting on the loan. For this reason, it's not recommended that you use a home equity loan for paying off consumer debt or payday loans.
Finally, it may take up to four years to complete a debt settlement program, during which time you are still responsible for your debt and any associated late fees. Before going with a debt settlement service, you should take a serious look at your budget and see if you can batten down, make extra payments and get out of debt on your own in that same amount of time. Most debt settlement programs encourage a strict budget anyway.
Payday Loan Consolidation: What to Look For
Costs & Fees
The point of a debt settlement company is to cut down on what you're paying, so check around and find the company that charges the least for negotiating the debt you have. Some companies charge fees based on the amount of debt you have when you enroll in the program; others charge a portion of the amount of debt they settle for you. Usually the second option is preferable, just in case they cannot settle all your debt, even if it's a higher percentage.
We determined estimated fees based on each company's means of charging you. For the example, we used a $10,000 debt. If a service charges 30 percent of the enrolled debt, the fees come to $3,000 regardless of how much debt it settles. If the service charges 40 percent of the settled debt, the payment depends on how much it's able to negotiate down. If it settles 60 percent ($6,000) of the $10,000 debt, it charges a fee of 40 percent of the $6,000, or $2,400. Thus, while 40 percent looks larger, you end up paying less than if you had been charged 30 percent of your total debt.
For example, Oak View Law Group, which is seventh on our top 10 list of services, charges a percentage of the settled amount of debt rather than your total enrolled amount.
When testing a company's transparency and adherence to regulation, we asked questions about the requirements for a program, including how much the program would cost, if we would have to pay anything upfront or pay monthly fees and whether it could stop collectors from harassing us once in a program.
As a rule, companies should never make promises to stop collectors from calling you, nor promise to reduce your debt completely or quickly. They should be forthcoming with information in accordance with law.
Eligibility & Application
Most debt settlement services have a minimum requirement of several thousand dollars in order to enroll. The Consumer Financial Protection Bureau found that the average payday loan is $350, and some people take out as many as eight in a year, so it's not impossible to be in such debt that you qualify for debt settlement based on payday loans alone. However, the qualifying debt can include any combination of unsecured debt, including credit cards and medical bills.
Pick a service that is easy to enroll in, has multiple ways to access your account and offers both secured and unsecured loans, if it has an actual debt consolidation process for payday loan relief. It should have an interest-generating FDIC-secured bank where you can put the money for the program.
The best payday loan consolidation and debt settlement companies offer friendly service, with knowledgeable agents who answer questions without pushing you to join the program. By law, they must explain the downsides to their program. The best services also offer tools and information on their websites to help you determine your best debt management options. CuraDebt, in particular, focuses on debt-management plans instead of debt settlement and can offer you alternatives and assistance in staying out of debt.
In our tests, we evaluated how completely the program was explained, if other options or solutions were suggested, and how well the representative explained the different types of bankruptcy and their effects on your credit. Pacific Debt scored exceptionally well. Representatives were polite and did not press for information. In addition, they researched answers they didn't have on hand and followed up with us.
Because this is such a long process, you want to keep tabs on your progress and have a way to ask questions. Once you sign on for the program, you should be able to access your account whenever you want. Most services have an online option. Many companies offer a personal advisor who handles your account and can be your go-to for questions or concerns.
No government agency regulates debt settlement companies, although there are laws they must follow. However, there are several organizations that provide private oversight and accreditation. These are the three most credible. Several, like Debtmerica, have at least two.
• The American Fair Credit Council (AFCC) promotes compliance to the Federal Trade Commission's (FTC) regulations.
• The International Association of Professional Debt Arbitrators (IAPDA) provides training and certification for debt negotiators and promotes best practices and compliance with the FTC. Arbitrators who are IAPDA certified have professional training in debt management and settlement.
• The United State Organization for Bankruptcy Alternatives (USOBA) was started by professionals within the industry to monitor debt settlement companies to ensure they follow legal regulations.
Payday loan consolidation service can help you get out of unmanageable debt, but they cannot solve your financial problems, especially if you don't fix the bad habits that got you into trouble in the first place. Make sure you exhaust all other options before you sign up with one of these services. Even if you do choose a payday loan debt consolidation or debt relief service, work on resolving the issues that are hindering your financial future.