How Does Payday Loan Debt Consolidation Work?
Consolidating payday loans means that you take another loan, usually a personal loan, and use those funds to pay off your remaining payday loan balances.
Personal loans for consolidation are often cheaper than payday loans and have lower interest rates. This can help you save a lot of money in the long term. The loan can be paid off in smaller monthly payments over several years.
Benefits of payday loan consolidation
Personal loans for debt consolidation can also help improve your credit score. FICO says that payment history is responsible for 35% of credit scores. This means that if you pay on time, your credit score could increase after a few months.
Why you should consolidate payday loans
You could consolidate payday loan debts with a payday loan, credit card, or mortgage. Loan consolidation is the best way to get out of the payday loan trap. Almost all conventional types of loans have a lower interest rate than payday loans, regardless of whether they are through a local credit union or credit card.
What impact does debt consolidation have on your credit score?
Talk to a certified financial planner or credit counselor if you are still uncertain about how to manage your payday loans. They will be able to make recommendations that are specific to your circumstances.
What are the pros and cons of consolidating payday loan debt?
Consolidating payday loans is a good idea, as it can reduce your interest rate and lower your long-term expenses almost always. However, not everyone can qualify for a debt consolidation loan.
Those who don’t qualify may apply for a secured loan. Examples of secured loans are home equity loans. If you don’t pay up the loan as agreed, you may end up losing your assets.
It is important to shop around before consolidating any debt. Credible allows you to compare personal loan rates, lenders, and to find a zero-interest balance transfer credit card to lower your interest costs.
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