Drowning in Payday Loans? These options can be useful. (iStock)
Payday loans are a short term 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 just struggling to pay off payday loans from days gone by, consolidation can help. To learn more about payday loans or consolidation loans, go to Credible for debt relief options.
How Payday Loan Consolidation Works
Consolidating payday loans essentially means taking out another loan – a personal loan, in most cases – and using those funds to pay off any remaining balance on your payday loans.
Since these types of loans generally have much lower interest rates than payday loans, this can save you considerably in the long run. You will also benefit from a longer repayment period and will be able to 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 an increase in your credit score after several months.
If you want to take out a personal loan, whether you are interested in a debt consolidation loan or something else, go to the online marketplace Credible. Credible can assess your financial situation and find the right lender.
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In addition to a personal loan, you can also consolidate your personal loan debt using a credit card or, if you are a homeowner, by refinancing your mortgage, through a cash line of credit. Home Equity Loan (HELOC) or through a Home Equity Loan.
“The best way out of the payday loan trap is with loan consolidation,†said Doug Lynam, director of LongView Asset Management in Santa Fe, New Mexico. “Almost any type of conventional loan has a lower interest rate and better terms than a payday loan, whether through a local credit union, a credit card or a home equity line of credit. “
Are you ready to consolidate your payday loan debt? Then compare your options today on Credible.
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If you still don’t know how to manage or get out of your payday loans, consider talking to a credit counselor or certified financial planner. They can offer personalized recommendations specific to your situation.
What Are the Cons of Payday Loan Debt Consolidation?
Since consolidating your payday loans can almost always lower your interest rate and lower your costs in the long run, it is rarely a bad idea if you can qualify.
That’s the caveat, however: Not everyone will be eligible to consolidate their loans through any 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 only make minimum payments, the interest charges could turn out to be 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 an interest free balance transfer card to lower your interest charges.
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