Payday loans are a short term, in a pinch option for cash-strapped consumers. But they are hardly a saving grace.
With exorbitant interest rates and short repayment terms, they often incur more costs than they are worth. They can also cause a vicious cycle of debt that is virtually impossible to break out of, especially for those who live paycheck to paycheck.
If you find yourself taking out loan after loan to cover your debts or are just struggling to repay the payday loans of days gone by, consolidation can help. To learn more about payday loan debt help or consolidation loans, head to Credible for certain debt relief options.
How personal loan consolidation works
Payday loan consolidation essentially means taking out another loan – a Personal loanin most cases – and use these funds to pay off any remaining balance on your payday loans.
Since these types of loans usually have much lower interest rates than payday loans, it can save you a lot in the long run. You will also enjoy a longer repayment period and can repay the loan in monthly installments over several years.
A personal loan can also help you with your credit. According to FICO, payment history makes up a whopping 35% of your credit score, so as long as you make payments on time, you could see a credit rating increase after several months.
If you want to take out a personal loan – whether you are interested in debt consolidation loans or otherwise, go to Credible online marketplace. Credible can assess your financial situation and find the right lender.
Besides a personal loan, you can also consolidate your payday loan debt using a credit card or, if you own a home, by refinancing your mortgage, through a credit line. home equity loan (HELOC) or through a home equity loan.
“The best way out of the payday loan trap is through loan consolidation,” said Doug Lynam, director of LongView Asset Management in Santa Fe, New Mexico. “Almost all types of conventional loans have a lower interest rate and better terms than a payday loan, whether through a local credit union, credit card or home equity line of credit.”
If you’re still unsure how to manage your payday loans or get out of debt, consider talking to a credit counselor or certified financial planner. They can offer personalized recommendations specific to your situation.
What are the disadvantages of personal loan debt consolidation?
Since consolidating your payday loans can almost always lower your interest rate and lower your costs in the long run, it’s rarely a bad idea if you can qualify.
That’s the caveat, though: not everyone will be eligible to consolidate their loans through one of these strategies.
These loans come with credit score requirements, and HELOCs and home equity loans require you to own a home. Credit cards are more accessible, but if you’re only making minimal payments, the interest charges could prove quite significant in the long run.
For these reasons, it is always important to shop around before consolidating debt. Use Credible to compare personal loan rates and lenders or to locate a interest-free balance transfer card to reduce your interest costs.