Payday Loan Debt Consolidation Option – How does it work?
Consolidating your 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.
One way to get rid of payday loans is to consolidate them or a payday loan relief. Even if the debt consolidation loan has a 30% interest rate, it’s better than the payday loan, which has a 400% interest rate. Debt consolidation loans aren’t the only debt relief option.
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.
Nonprofit credit counselors usually provide free debt counseling and instructional materials, as well as no-cost or low-cost debt management services, such as for payday loan debt. A credit counselor can assist you in weighing your alternatives, which may include debt management plans that allow you to repay your debt over a longer period of time.
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, payday loan lenders, and to find a zero-interest balance transfer credit card to lower your interest costs.
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