Here's a look at how the debt consolidation payday loan bait and switch "scam" works. I put the word scam in quotations because this practice of luring unsuspecting consumers into these type of loans is not so much a scam, but rather very misleading advertising. No matter what you call it though, it is something that you should be aware of if you go looking for a personal loan to consolidate your debts.
Here's how it works...
You see an advertisement offering personal, unsecured loans. The ad usually says that the company will provide loans "up to" a certain amount, usually $15,000 to $25,000, but sometimes more. And hey, don't worry if your credit isn't perfect, they can still accommodate your needs.
Wow, this is exactly what you have been looking for! You have some
debts that you are struggling with and are considering a debt
consolidation loan to take care of this problem (not a debt
consolidation payday loan, but a real loan). In fact, you
have been struggling so much that you have missed a few payments on
some of your credit cards, and now your credit score has suffered. But
you see this ad that says that you do not need "good" credit to qualify
for a "loan". And you are confident that if you could just borrow
$15,000 at a lower interest rate than you are paying now, which would enable you to
consolidate all of your debts, things would turn around for you financially.
Yes, the company does offer loans up to $25,000 at low interest rates (this is the bait), but those loans are only for people with good credit and a good income. If, on the other hand, you have a poor credit score, the loan you qualify for is slightly different (this is the the switch). Instead of $25,000, you will likely only qualify for a loan up to $1,500. And the interest rate? Well, once you factor in the up front fees, and the term of the loan (usually a very short time frame) you are usually looking at rates higher than what you are paying on your credit cards.
What could possibly be positive about thinking your going to get a loan to consolidate your debts and ending up without one? Well, the reality is that taking on a new loan to consolidate debts, without fixing the underlying problem of how you got in debt trouble in the first place, is usually a road to even greater debt problems.
There is one common denominator to almost every debt relief program.
And that is, you have to educate yourself about your personal finances,
learn about money management, prepare a strict budget, stick to it, and
pay down your debts. (Alright, that might be "more" than one common denominator, but you get the idea.)
There is no magic program that eliminates your debts without doing this "work", other than perhaps a Chapter 7 Bankruptcy filing. (And even then you would benefit greatly from learning more about your finances and creating a budget moving forward.) All of the other debt relief programs (debt management, debt settlement, debt consolidation loans etc.) will only help you if you focus on living below your means while you pay off your debts.
Now, if you still think that a debt consolidation loan (not a debt consolidation payday loan) is right for you, I would recommend that you first focus on sticking to a budget. And if you can do that successfully for a number of months, then, and only then should you consider a consolidation loan. But until you can prove to yourself that you can change your money habits, a consolidation loan, a debt consolidation payday loan, (or any other debt reduction program) will not help you.