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Multiple Payday Loans? Why Consolidation Could Work for You.

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Stuck With Multiple Payday Loans? Why Consolidation Might Be Your Best Option.

Every year, around 12 million Americans are estimated to take out payday loans. But what you may not realize is that this is one of the most expensive ways to borrow money. The annual percentage rate for a payday loan can exceed 300%, which is gargantuan compared to the 16% of a typical credit card APR.

As a result, many payday loan borrowers end up trapped in an endless cycle of debt. If you’re unable to get out of the payday loan trap, you’ll want to look into payday loan consolidation. It may be able to provide you with relief and protect you from having to pay huge interest rates and fees that could dig you deeper into financial despair.

What Is Payday Loan Consolidation?

One of the more costly endeavors consumers face is the decision to request a payday or short-term loan with high-interest rates and short payment terms. Oftentimes, these unfavorable repayment terms can have devastating effects on the consumer, including the need to obtain additional loans to repay the original funds received. Working with a nonprofit to consolidate payday loans into one, more affordable monthly payment, with no additional loan required, can be the ticket to getting out of the tangled financial mess.

While payday loans are designed to be paid off in as little as a few weeks, they can be renewed or extended, which is why most people take months — not weeks — to pay them off. As a result, more and more debt is added to the borrower. Payday loan consolidation offers a solution to long-term financial distress and is designed to bring all your high-interest loans into one, smaller, and more manageable payment with drastically reduced interest rates.

Shifting your payday loan debt into a new loan through consolidation can put an end to your debt cycle. It will also give you a chance to pay your debt back in fixed installments over an extended period of time.

How Payday Loan Consolidation Can Help

Consolidating your debt (especially if there are many) into one payment can help you manage it effectively. Below are just a few reasons why:

Fixed Repayment Terms

Unlike a payday loan which generally needs to be repaid in two to four weeks, consolidation can reduce the total amount required to be paid back, while simultaneously reducing interest rates to a lower, fixed rate. This helps save money in the short, and long term by lowering the payments required while extending the period of time allowed to pay the loan back in full.

Lower Fees

Payday loan consolidation will often reduce the interest fees compared to the original contract. As mentioned, payday loans may have fees with annual percentage rates which can reach more than 300%. Also, the risk of receiving late fees for defaulting on payments you can’t afford is reduced due to the lower payment required through consolidation to satisfy the original payday loan amount.

Breaking the Borrowing Cycle

Borrowers can find themselves trapped in a vicious cycle of needing one loan to pay off another. Consolidation allows the borrower to gain a reset in regards to acquiring new payday loans, which can help the borrower avoid new loan fees as well.

Predictable Monthly Payments

Once you’ve consolidated your payday loans into one monthly payment with a nonprofit organization, like Money Fit, you’ll be able to make one payment every month towards your debt, even if you’ve accumulated several payday loans over the same time period. This schedule will remain the same until you’re able to fully pay off your original loans.

You Can’t Renew Your Consolidation Plan (That’s a Good Thing)

Consolidation doesn’t require a loan. Don’t fall for the personal loan trap where you can get stuck with a long-term loan that can have negative consequences on your credit report if you’re unable to fulfill the payment requirements. Also, the chances are that if you’re relying on payday loans, it’s likely any personal loan you seek will have negative repayment terms such as high-interest rates and potential cosigner requirements.

When you consolidate your payday loans with Money Fit, you aren’t borrowing money, you’re restructuring your payment terms, thus not needing another personal loan to pay off your original loans. Therefore, you have no need to request a renewal, which helps break the borrowing cycle and gets you on a direct path to living a debt-free life.

How Does it Work?

Debt consolidation works by combining many high-interest loans — much like payday loans and other kinds of unsecured debt — into one combined monthly payment that reduces the original loans interest rate, as well as reduces the monthly payment amount. If you’re looking to escape from the payday loan trap, consolidating your payday loans into a consolidation plan might just be what you need — it’s also a simple process.

  1. You must first contact a nonprofit consolidation provider, such as Money Fit. When doing this, you’ll need to provide some personal and financial details along with other documents, such as:

    Your personal information such as name, address, phone number

    Original payday loan information and terms

    Household budget information to determine repayment ability

  2. Spend approximately 30 minutes with a certified payday loan consolidation expert who’ll review your situation in detail and provide you with the best option available to you.

  3. Review and return the consolidation contract and enroll in the payday loan consolidation plan. You may need to provide copies of your original payday loan contracts at this point. You’re now an enrolled client and your consolidation company will begin working on your repayment program, allowing you to focus elsewhere.

Payday Loan Consolidation or Debt Settlement?

If you’re unsure of where to get payday loan relief, you may be looking into both payday loan consolidation and debt settlement. Our research, in our publication entitled, The Truth About Debt Settlement, highlights the several risks settlement poses, thus making consolidation the preferred option. This is because debt settlement companies tend to charge huge fees, and the process could end up significantly damaging your credit.

A debt settlement company will make negotiations on your behalf, hoping that you’ll be able to pay less than what you owe to your creditors. However, there’s no guarantee that this will work and may leave you in a worse position than when you started.

Moreover, debt settlement companies will often say that their services offer “debt consolidation,” but remember that debt consolidation and debt settlement aren’t the same things. Debt settlement works by paying less than what you owe in your debt, while debt consolidation means that your loans will be paid as agreed where you’ll have one “consolidated” payment. The payment will be made once a month until the original debt is satisfied.

Will Payday Loan Consolidation Hurt My Credit?

As long as you aren’t applying for another loan to repay your original payday loans, your consolidation plan won’t appear on your credit. Considering that payday lenders traditionally don’t report to credit reporting agencies, as long as you repay your debt and avoid having the original loan amounts deferred to a collection agency, you’ll be able to avoid negative marks on your report. Since a consolidation program like Money Fit offers consolidation without a loan, you’ll improve your prospects of increasing your credit score once you’ve completed your plan due by reducing your overall debt load.

Should You Get a Personal Loan?

It may be harder to qualify for a personal loan compared to a payday loan, and the minimum loan amount could also be higher. Moreover, you might not be able to get money as quickly. But to help you decide on how to get payday loan help, here are things you should know if a personal loan for payday loan consolidation is the right choice.

  • Check your credit scores: Unsecured personal loans are granted based on your credit. If you don’t qualify for an unsecured loan, try getting a secured personal loan instead.

  • Minimum loan amounts: The minimum loan amount will vary by lender, but is typically around $1,500. This is higher compared to the amount of a payday loan, but if you don’t need that much money, you can use the extra to quickly pay back the loan early.

  • How fast do you need the money: If you have an immediate need for the money, a personal loan may not be able to provide it to you. The length of time before you receive funds will vary depending on the lender and your circumstances.

  • Prove your capability of paying: Unlike payday lenders which only look for a paycheck and a checking account, many financial institutions will need proof that you’ll be able to make loan repayments on time. Ensure that your debt isn’t too high and that you have adequate income for the amount you wish to borrow.

Consider Consolidating Your Payday Loans

As discussed, there are many advantages to payday loan consolidation compared to acquiring new or renewed payday loans or other short-term loan products, which include fixed payment amounts, lower rates, and fees, as well as consistent monthly payments. While a payday loan is a quick and easy solution for fast cash, it’s a trap developed to keep consumers in a vicious cycle of paying more fees for the same loan. If you’re stuck in this never-ending nightmare, consolidating your debt into one, more affordable monthly payments, might just be what you need to set yourself free.

About the Author

Todd Christensen

Todd Christensen

As the education manager for Money Fit, author, speaker, and financial educator, Todd Christensen develops financial education programs and provides credit and debt counseling for individuals and groups around the country. In 2014, Todd published his first 5-star-rated book, Everyday Money for Everyday People based on stories and ideas he had heard in nearly 1,000 workshops he facilitated on budgeting, credit, debt reduction, saving, and identity protection.
Visit Todd Christensen's Page
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You hereby authorize and instruct Debt Reduction Services, Inc. (DRS, dba Money Fit by DRS) and/or its assigned agents to:
  • Obtain and review your credit report, and
  • Request verifications of your income and rental history, and any other information deemed necessary for improving your housing situation (for example, verifying your annual property tax obligations and homeowner’s insurance fees)
Your credit report will be obtained from a credit reporting agency chosen by DRS. You understand and agree that DRS intends to use the credit report evaluate your financial readiness to purchase or rent a home and/or to engage in post-purchase counseling activities and not to grant credit. You understand you may ask any questions pertaining to your credit report. However, while DRS will review the information with you, the company is not able to furnish you with a copy of your credit profile. You hereby authorize DRS to share your information from your credit report and any information that you provided (including any computations and assessments produced) with the entities listed below to help DRS determine your viable financial options.
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  • Debt Collectors
  • Landlords
  • Lenders
  • Mortgage Servicers
  • Property Management Companies
  • Public Housing Authorities
  • Social Service Agencies
Entities such as mortgage lenders and/or counseling agencies may contact your DRS counselor to evaluate the options for which you may be eligible. In connection with such evaluation, you authorize the credit reporting and/or financial agencies to release information and cooperate with your DRS counselor. No information will be discussed about you with entities not directly involved in your efforts to improve your housing situation. You hereby authorize the release of your information to program monitoring organizations of DRS, including but not limited to, Federal, State, and nonprofit partners for program review, monitoring, auditing, research, and/or oversight purposes. In addition, you authorize DRS to have your credit report pulled two additional times to conduct program evaluations. You also agree to keep DRS informed of any changes in address, telephone number, job status, marital status, or other conditions which may affect your eligibility for a program you have applied for or a counseling service that you are seeking. Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Client Privacy, Data Security, and Client Rights Policy

NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a statement, please ask a Debt Reduction Services (DRS) counselor for assistance.

Debt Reduction Services, Inc. (DRS) has put into place policies and procedures to protect the security and confidentiality of your nonpublic personal information. This notice explains our online information practices and how we use and maintain your information to conduct our financial education and credit counseling sessions and to fulfill information and question requests. This privacy policy complies with federal laws and regulations.

To provide our financial education and credit counseling services, we collect nonpublic personal information about you as follows: 1) Information we receive from you, 2) Information about your transactions with us or others, and 3) Information we receive from your creditors or a consumer reporting agency. We do not share this information with outside parties.

We use non-identifying and aggregate information to better design our website and services, but we do not disclose anything that could be used to identify you as an individual.

You hereby authorize DRS, when necessary, to share your nonpublic personal, financial, credit, and any information that you provided (including any computations and assessments produced) with the following entities in order to help DRS provide you with appropriate counseling or guide you to appropriate services: third parties such as government agencies, your lender(s), your creditor(s), and nonprofit housing-related and other financial agencies as permitted by law, including the U.S. Department of Housing and Urban Development.

To prevent unauthorized access, maintain data accuracy, and ensure the correct use of information, we have put in place appropriate physical, electronic, and managerial procedures to safeguard and secure the information we collect online. We limit access to your nonpublic personal information to our employees, contractors and agents who need such access to provide products or services to you or for other legitimate business purposes.

Debt Reduction Services, Inc. complies with the privacy requirements set forth in the HUD housing counseling agency handbook 7610.1 (05/2010), including the sections 2-2 Mc, 3-1 H(2), 3-3, 5-3 F, and Attachment A.5. At all times, we will comply with all additional laws and regulations to which we are subject regarding the collection, use, and disclosure of individually identifiable information.

  1. Services: DRS provides the following housing-related services: counseling that includes Homeless Assistance, Rental Topics, Pre-purchase/Homebuying, and Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase); Education courses that include Financial literacy (including home affordability, budgeting, and understanding use of credit), Predatory lending, loan scam or other fraud prevention, Fair housing, Rental topics, Pre-purchase homebuyer education, Non-delinquency post-purchase workshop (including home maintenance and/or financial management for homeowners), and other workshops not listed above.

Please refer to DebtReductionServices.org for details of our services.

  1. Limits: Our services are limited to our normal weekday business hours. We do not provide individual counseling or education services after hours or on weekends, although our education courses are available 24/7.
  2. Fees: We do not charge fees for our financial management counseling and education. However, if you use them, you may have to pay for our Debt Management Program, Student Loan Counseling, Bankruptcy Certificate Services or certain financial education courses (homebuyer education, rental topics, fair housing, predatory lending, and post-purchase-non-delinquency including home maintenance and/or financial management for homeowners).
  3. Records: We maintain records of the services you receive, including notes about your progress or other relevant information to your work with us. You have the right to access and view your records by making a request to your counselor.
  4. Confidentiality: We respect your privacy and offer our services in confidence with the understanding that we may share such information with auditors and government regulators. Certain laws or situations may also lead to disclosing confidential issues, such as those involving potential child abuse or neglect, threats to harm self or others, or court subpoenas.
  5. Refusal of Services: You have the right to refuse services without any penalty or loss.
  6. Disclosure of Policies and Practices: You will be provided our agency disclosure statement.
  7. Sharing of Information: Sometimes we will need to contact other agencies or we may need to share your information, including your records, with other agencies or with regulators. We will do this only if you sign this form that gives us permission except for limited reasons; please see # 5 above for examples of such situations.
  8. Other: You have the right to be treated with respect by our staff, and we expect the same from you in return. We encourage you to always ask questions if something is not clear. We also encouraged you to express your thoughts and advocate throughout our services.

You acknowledge that this authorization will remain in effect for the duration of time that DRS serves as your housing counselor or financial education provider. You also acknowledge that should you wish to terminate this authorization, you will notify DRS in writing.

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NOTE: If you have an impairment, disability, language barrier, or otherwise require an alternative means of completing this form or accessing information about our counseling services, please communicate with your DRS representative about arranging alternative accommodations.

Program Disclosure Form

Disclosure to Client for HUD Housing Counseling Services

Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
  • A Debt Management Program (DMP) for consumers struggling to pay their credit cards, collections, medical debts, personal loans, old utility bills, and past-due cell phone accounts;
  • The Budget Briefing and Debtor Education Certificates that are required during the Bankruptcy filing process;
  • A Student Loan Repayment Plan Counseling and application service.

Relationships with Industry Partners

Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

No Client Obligation

The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.
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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).