Understanding Payday Loan Consolidation
If you are struggling financially, you might want to turn to quick and fast money and take out a payday loan. However, as with any type of loan, there are risks associated with payday loan consolidation.
Here we will discuss them more and all the risks involved in taking one out.
Everyone has money problems from time to time. That’s why a lot of people turn to payday loans, but they don’t realize that it’s a very risky option. This is because you can end up in a never-ending cycle of debt. The best thing you can do to avoid getting into debt and paying sky-high interest rates is to turn to payday consolidation.
What Is Payday Loan Consolidation?
One of the best things you can do to avoid debt regarding a payday loan is to consolidate it. What that actually means is that you are going to combine several payday loans into one loan in order to reduce the total amount that must be repaid. This can result in a lower interest rate and a shorter repayment period.
In order to do so, you first need to contact each of the lenders involved and ask them to approve the consolidation. If they approve it, you then must send the approved loan details to the credit union or bank that is lending you the money. The consolidation process usually takes about two weeks to complete.
How Does Payday Loan Consolidation Work?
Consolidating payday loans is a great way to not get into debt. This allows you to save money by swapping several high-interest rate loans into one that has a lower interest rate. This strategy involves taking out a personal loan from credit unions, banks, or other alternative lenders.
It’s important to note that a lot of people with bad credit turn to payday loans since lenders don’t perform any credit checks, but it can be hard for them to get a payday loan debt consolidation because of it.
Payday Loan Consolidation: Pros and Cons
A payday loan consolidation can help you get out of a tight financial situation. However, there are some things to consider before you take out a payday loan consolidation. Make sure you can actually afford to pay back the loan in full on time. With that said, you also need to keep in mind that they have pros and cons to them. Here we will give you some of them.
Pros of payday loan consolidation:
- Reduce the overall borrowing cost
- Can get a lower interest rate if you consolidate
- Can help you avoid declaring bankruptcy
Cons of payday loan consolidation:
- Possibility to still default on the loan
- Defaulting can hurt your credit score
- High-interest rates
Pros
If you decide to go with payday loan debt consolidation, it can help you reduce the borrowing cost, which can help you stay afloat and manage to pay it back. This way, you can repay it back and not get in a situation where you need to file for bankruptcy.
Cons
Now as much as consolidating can help you pay the money back and minimize the borrowing costs, it can still end in you defaulting on the loan if you are not careful. Plus, you will still have high-interest rates to pay, and if you halt the loan, it’s going to have a bad impact on your credit score.
How to Consolidate Payday Loans?
If you have multiple payday loans, the best thing is to consolidate them into a single loan. This can save you money in interest and fees. There are a few different ways to consolidate payday loans, but the most common one is through payday loan consolidation companies.
When you consolidate your payday loans with companies specialized in that, they will usually take care of all the paperwork for you. This includes getting copies of all your payday loans, calculating the interest and fees on each loan, and submitting the information to the lender who issued the original loan. This can save you time and hassle.
Is Payday Loan Consolidation Bad for Your Credit?
The answer is absolutely yes! This is because a payday loan doesn’t appear on your credit report, but you taking out a payday loan consolidation does. This can play in two ways, either it’s going to help out your credit or damage it badly. Once you apply for consolidation, you can see a small dip in your credit score, but don’t worry; it’s only temporary.
If you are on time with your payments and keeping balances low on your other credit accounts, it can help you improve it in the long run. On the other hand, if you miss your payments or halt the loan, your credit score is going to go down.
Alternatives to Payday Loan Consolidation
If you’re looking for an alternative to payday loan consolidation, there are a few things you can consider.
- Borrow from family or friends. This is a great way to avoid getting into debt. If you need a smaller amount to borrow, it’s best to turn to friends and family instead of getting a payday loan.
- Bad credit personal loan. A better way of getting the money, since even though they have high-interest rates, it’s not in comparison to the sky-high interest rates payday loans have.
- Payday alternative loan (PAL). You can get it through a credit union or bank. They have lower costs than regular payday loans.
- Low-interest credit card. If you have a good credit score, you can always turn to a low-interest credit card.
- Peer-to-peer lending. You can search for them online and apply on the page directly. You are borrowing money outside the traditional institutions, and that way, you can have a lower interest rate.
- Credit card cash advance. Have lower interest rates than payday loan consolidation, and they are easy to get.
Final Thoughts
If you ever took out a payday loan or you currently have one, you know that they are very expensive and not very manageable to repay back in just a few weeks. Payday loan consolidation is a great way to avoid getting into debt and manage to repay your payday loan back.
We discussed here more about them, and how they work, so you know what to expect. In the case you are stuck in the circle of debt with this loan, we suggest you talk to an expert who can create the best plan to help you get out. In this article, you can as well find useful information on different alternatives to payday loans that will not push you into debt.
