Consolidating debt is one way of trying to "compact" your bills, get lower interest rates, and pay off what you owe faster. But should this be an option for your payday loan? Knowing what debt consolidation entails is the first step to making a decision about what to do with your financial obligations.
There are different types of debt consolidation; all with different names and services.
*Debt Consolidation- One company buys your debt from all of your creditors and in turn you make one payment to them until your debt is clear. With this type of consolidation, you have the ability to get a lower interest rate on what you owe while paying it down. This will save you quite a bit of money in the long-term.
*Debt Management- A third party will negotiate with your creditors to get you a lower interest rate and reduced payments.
*Debt Settlement- With the intent of paying off your creditors, a third party negotiates lowering your principal balances.
There is no shortage of debt consolidation companies. You can find dozens to choose from whether you go online or peruse the phone book. Your search results will undoubtedly come up with companies that encompass all the services above. But if you are looking to consolidate your payday loan debt, which type of company is best for you? Debt management and debt settlement can be risky, depending on your particular financial circumstances. Payday loan and cash advance lenders, along with auto title loan lenders, may not agree on settling a debt or letting someone else manage your account. Debt consolidation, on the other hand, is an option as the third-party you will be working with will pay off your payday loan lender. No doubt the lender will be happy about that!
So how do you go about debt consolidation? As stated before, you can find a company that specializes in this services but you may also be able to do it on your own. "Do-it-yourself" debt consolidation is usually for people with FICO scores of 660 or over. If that's not you, then you will need to find a reputable company to work with.
Check the BBB (Better Business Bureau), Association of Independent Consumer Credit Counseling Agencies, and The National Foundation of Credit Counseling to see if the debt consolidation company you are interested in using is registered. The BBB will give the company a rating and a grade as well as listing any customer complaints they have received. You certainly don't want to work with a company that doesn't deliver on what they promise.
You may also consider a non-profit company although just because they are non-profit doesn't mean they won't charge fees for their services. Check to make sure they are in fact non-profit as anyone can say that but unless they have their 501 (c) (3) certificate, they are not. Companies that claim to affiliate themselves with a particular religion can also be misleading. Just because the company you are considering says they are non-profit or affiliated with your faith, it doesn't necessarily mean they are reputable. It all boils down to doing your research and choosing a company that you feel comfortable with. Stay tuned for part 2…"Avoiding A Debt Consolidation Scam For Your Payday Loan".