How to Consolidate Payday Loans

You can consolidate payday loans to reduce the total number of debts you must keep track of each month. When you consolidate, you will not likely reduce the principal sum you owe on your debts. However, through consolidation, you may be able to remove a portion of fees and streamline your payment process. Before entering payday loan consolidation, consider your current debt situation, evaluate possible solutions, and choose the one that works best for you.  

Validate Debts

The first step is to confirm the debts you currently owe and assure they are still active. You may think you owe on a number of debts the lender actually has no continued legal right to collect. In most states, the statute of limitations on payday debts ranges from five to seven years. After that time, you no longer have to repay the debts. Your credit will suffer from unpaid debts, but you are under no obligation to repay the lender. Start by contacting your lenders and asking for payoff quotes for your current payday loan debts. Determine which of the debts are lawful, which are no longer active, and how much you owe in total.

Check Payday Lending Laws

Check the payday lending laws in your state. Payday loans are subject to very strict rules. For example, while a payday lender may charge financing fees on late payments, these fees cannot extend beyond a certain cap in most states. Further, many states make it illegal for a payday lender to extend a second loan until the first has been paid off. If you have two payday loans from the same lender, one may be in violation of your state's laws. You can notify the lender and the Consumer Protection Agency to have this debt cancelled.

Notify Lender

Once you have validated your debts and assured that they are legal, you can notify your lender of your intent to consolidate the loans and therefore repay them early. Consolidation works by paying off all of your existing debts with one new loan. This loan can come directly from an existing lender. Often, with payday loans, the common form of consolidation is through a new loan with the payday lender. You may face financing fees as a part of this consolidation. Be very wary of consolidating for this reason. You may find it would be cheaper to simply pay off each loan as it comes due.

Consider Third-Party Consolidation

The best solution, though it is often the hardest, may be to go through a third-party lender. Contact lenders in your area who offer consolidation loans. Since these lenders are not technically "payday" lenders, they often offer more structured loan forms with lower financing fees. By moving your debts from the payday lender to a traditional financing company, you can save money. However, many traditional lenders are wary of payday loan consolidation because payday loans can be predatory, meaning they may have been issued against the better judgement of the lender. If you hope to consolidate to a third party, work to reduce your loan balances first and be prepared to validate your income and credit. 

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