Payday loans are tempting and available regardless of your credit score whenever you need cash right away. Unfortunately, payday loans are high-interest loans, expensive with short repayment periods that can be difficult to repay on time.
If you are struggling to manage multiple payday loan payments or stuck in the payday loan traps, payday loan consolidation is one of the forms of a payday loan assistance that can help.
What is Payday Loan Consolidation?
Payday loan consolidation is when you combine multiple existing payday loans under one new loan, which can be paid off in monthly installments and with better repayment terms.
By consolidating payday loans with a lower interest, you can have a longer repayment period and help you stick to your debt payoff plan.
Why do people consolidate their payday loans?
One of the biggest reasons why people consolidate their payday loans is that it allows them to manage them effectively. Below are just a few reasons why :
#1. Fixed Repayment Terms
A consolidated payday loan can reduce the total amount to be paid back, and also reduces the interest rate to a fixed or lower rate, unlike a payday loan which generally needs to be repaid in two to four weeks.
#2. Lower Fees
Payday loan consolidation often allows you to save money by reducing the interest fees compared to the original contract. Due to the lower payment required through consolidated payday loans, the late fee for defaulting on payments you can’t afford is reduced.
#3. Predictable Monthly Payment
Once you have consolidated your payday loans into monthly payments with the organization, you will be able to repay every month over the same period.
#4. Breaking the Borrowing Cycle
Sometimes, borrowers may find themselves trapped in a cycle of needing one loan to settle the other. Consolidated payday loans allow a borrower to avoid new loan fees.
Steps to Consolidating Payday Loan
Below are the 3 steps to consolidate payday loans after adding up your current balances for all your payday loans :
#1. Shop Around for the Best Loan
Once you know the amount you need to pay off your debts, use comparison websites to shop around for the best deals. However, make sure to check individual providers’ websites because not all consolidated payday loans are listed on comparison platforms.
#2. Use Eligibility Checkers
One of the best ways to compare loan offers when you have found some deals that you are interested in is to use eligibility checkers to see what loan amount, rate, and term you may qualify for without hurting your credit score.
Only people with high credit scores are qualified and accepted for the best deals, so you must use an eligibility checker before making an application.
#3. Apply for the Loan and Receive Funds
After filling out an application usually online, with personal information, address, or contact details. After this, you will need to submit documentation, proof of identity, and income.
If your application is approved, you will sign the loan agreement and receive funds.
Alternatives to Payday loan consolidation
Payday loan consolidation can be the fastest and easiest source of funding. Alternatives to this
Personal Loan
Personal Loan allows you to borrow for periods of two to five years so large loan balances are easier to manage. However, you pay interest for as long as you borrow.
Credit Cards
Credit cards allow you to quickly borrow and spend money against your credit limit with a cash advance. Credit cards are less expensive compared to payday loan consolidation. Although it has a higher rate, you may enjoy flexibility when it comes to repayment.
Borrow with a Co-signer
A co-signer could help you get approved for a credit card and personal loan. They assist you in applying for a loan, the lender takes the Co-signer’s credit history when deciding to give you a loan.
Borrow from Family or Friends
Borrowing from people you know sometimes is the best option for avoiding high-cost loans. Although, it can complicate relationships. The Internal Revenue Service requires that you and your family members create a signed document that includes the loan’s repayment period and the interest rate.
Payday Loan Consolidation Mistakes
Whether payday loan consolidation is a bad or a good idea depends on various factors. It is a bad idea if it will cause you to incur more loans. Furthermore, one must research and consider the mistakes that are associated with it.
Below are the common mistakes people make during payday loan consolidation:
- More spending: consolidated payday loans can help you pay off what you owe if you make and stick to your payment plan. However, if you continue using your credit card for purchases you can’t pay off, you might never get out of debt.
- Potentially high fees; some payday consolidation loans may come with an originated fee, which is an upfront charge for taken-out loans. Furthermore, you might be charged a prepayment fee if your old debt has one.
Conclusion
Payday loan consolidation provides a viable alternative for people to get out of debt. However, to make a success of it, it is important to understand the steps to take. Knowing what to do will go a long way to ensure that you not only get out of debt faster but also stay out of debt.
You may still have some fears and possibly wonder if consolidation is the way to go. In that case, it is important to consult the services of a financial expert who will advise on the best line of action to follow based on the peculiarity of your situation.
