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Can You Consolidate Payday Installment Loans?

Consolidating multiple debts into one is called debt consolidation. This strategy involves taking out a lower-interest loan to pay off multiple high-interest debts.

For many reasons, consolidating expensive debt into one easy-to-manage account with a single payment can be a smart move. Consolidating debt can save you money. It can help you get out of debt quicker and may even improve your credit score.

Are you thinking about simplifying your debts and hopefully saving money? Below is a list of the three most common debt types you can consolidate, along with their benefits.

Credit card debt

Financial advice suggests that you pay off your credit card debts in full each month. This will help you avoid interest payments, reduce your debt, and protect your credit score from any damage.

For many Americans, however, a credit card balance is an everyday part of their lives. You don’t have to accept credit card debt as a part of your daily life. It is possible to create a solid plan to eliminate credit card debt, and debt consolidation may help you get there sooner.

Financial benefits

It makes sense to consolidate your credit card debts by starting with the most costly debt first. A low-interest personal loan can be used to pay off expensive credit card debt. You could even pay the debt off in as little as two years. 

Credit benefits

If your credit reports reveal that you have outstanding credit card balances, it may lower your credit score. From a scoring perspective, the balance on your credit cards is not so important. FICO scoring models are more concerned with how much of your credit limit is being used. This is called the credit utilization ratio.

Student loans

Consolidating student installment loans is another option for consolidating debt. Even if you make only one monthly payment to a loan provider, you may have multiple student loans accounts on your credit report.

A new loan is opened in the name of each student who received funds at college. Students often take out new loans each semester to cover tuition and fees. It’s not uncommon to have eight or more student loans in a single semester while pursuing a standard undergraduate degree. You can consult your credit reports to find out how many student loans are owed. Consolidating loans might be worth looking into if you find that you have several student loans on your credit report. 

Financial benefits

you may be able to get a lower interest rate for a consolidation student loan. This could save you a lot of money. Consolidating student loans with lower interest rates will save you more money.

Credit benefits

The number of accounts on your credit report with balances is one of the factors that scoring systems pay attention to. It can have an impact on your credit scores. You can do your credit score a favor by reducing the number of accounts that have outstanding balances. While your score won’t rise 100 points or anywhere close, even a few points can make a difference in improving your credit.

Personal loans 

Consolidating high-interest personal loans can help you simplify your finances and get out of debt faster.

Financial benefits

You might be able to save interest if you have previously taken out personal loans. You might have better credit or lower interest rates than when you took out the original loan. You might save a lot of interest if you can get a loan at a lower rate.

It is a good idea to compare rates before applying for any new financing. To find the best rate for you, Bankrate and your local credit union can help you compare personal loan rates.

Credit benefits

Personal loans do not increase credit utilization. You won’t notice a significant increase in your score if you cancel all personal loans and get a new one. You might see a slight improvement in your scores if you decrease the number of accounts that have balances. The credit inquiry and the existence of a new account might negate any potential score improvement.

Consolidating debt can be a win-win situation

It is important to take a moment to think about the possible downsides before you sign up for any type of financing. People make a big mistake with consolidation loans by continuing to accumulate more debt after they have used a new loan to consolidate their existing balances. This can lead to financial ruin.

This mistake can be avoided if you know in advance that your credit card debt is not within your limits. Consolidating debt is not a magic bullet. However, if used correctly, it can be a powerful tool that can help improve your finances and credit score.

 

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