Payday loan consolidation can provide you with the opportunity to close out many of your existing payday loans with one, less expensive loan option. This is a commonly needed for borrowers who have taken out many high risk and high cost payday loans at once. If you are trapped in a cycle of payday loan debt, consider consolidating with a different form of loan to achieve more financial freedom.
Payday Debt Cycle
The primary cause of multiple payday debts for one person is the cycle of debt this type of financing can lead to. The loans have extremely high interest rates and are often due in one lump sum instead of installments. This means you will have to come up with a check much higher than the initial amount you borrowed very quickly upon taking the payday loan since they typically mature within 30 days. If you cannot come up with the cash, you may be tempted to take another loan to pay off a minimum balance and avoid penalty. This is extremely common; in fact, payday lenders like this scenario because it guarantees them a continued string of profits from one source.
Taking a Consolidation Loan
Taking a consolidation loan can help you break the cycle. However, you should avoid consolidating with another payday loan. The goal should be to get out of this high risk environment and into a more stable form of financing. Most payday borrowers have low credit scores, meaning they will not qualify for low rate loans from a traditional bank. You may still qualify for a high risk secured loan with an alternative lender. Using one of your owned assets as collateral, you can get a loan up to the total amount the asset is worth. If you have no assets, a high risk personal loan may still be available to you from an alternative lender.
Paying Off Current Debt
When you take out the new loan in a sum large enough to pay off all of your existing consolidation debt, you can pay off the loans in one move. This creates a situation where you are totally free of the payday debt cycle and have only one payment to pay attention to in the future. The new loan will typically have a much lower rate because payday loans are the highest rate loans available. Even a high risk personal loan will have a lower rate than your previous payday loans.
Implications for the Future
Most third party loan consolidation, which is the process just described, results in punishment on your credit score. However, with a payday loan, it is not likely your initial lender even reported the debt to the bureaus. As such, you can get off completely clear from any future penalties on the payday loans you previously took. There are very few downsides to consolidating payday loans with a personal loan from a bank or alternative lender. In the end, you will have more control of your funds and be paying much lower rates on the same amount of debt.
Is there a payday loan consolidation that doesn't require a fee?
Typically, any type of loan modification, including payday loan consolidation, will come at a fee to the borrower. The only exception may present itself in a direct consolidation with the lender. If you have taken more than one payday loan straight from a single lender, you may ask that lender to consolidate your loans for ease of payment. You may also ask the lender to reduce your interest fees, but convincing the lender to take this step will be possible only if there is a low chance the lender will recover without making this concession.