Have you experienced a financial emergency? Did you need to get a payday loan to cover it? And are you now stuck trying to pay that loan off?
Payday loans can reel you in and make it hard to pay them off. Luckily, there is a payday loan consolidation option to consider. However, there are always pros and cons. You should carefully evaluate whether you should work with a payday loan consolidation company or get rid of your debt in another way.
What Is Payday Loan Consolidation?
Payday loan consolidation converts your payday loan or loans into another type of debt. The new loan usually has much better repayment terms than the payday loan, which can have high-interest rates and fees.
Consolidating payday loans can help you pay off your debt without as much money or time. It can be a great option if you have a lot of small payday loans. But it can also help if you have one small loan that you’ve had to renew and which has a higher balance.
You can decide to use another option to consolidate your debt, but, in general, payday loan consolidation is a smart financial choice.
Advantages of Payday Loan Consolidation
If you’re struggling to pay off a payday loan, consolidating your debt is worth considering. You can get a new loan that you can use to pay off your existing debt. The new loan will typically have a longer repayment period, so you can make smaller payments.
And since payday loan fees and annual percentage rates (APRs) tend to be very high, you can lower these. That way, you won’t have to pay as much in interest or other administrative fees.
Consolidating your payday loans can also help you avoid wage garnishment. If you cannot pay your loan off, the lender could take money directly from your paychecks. However, you can get a different loan to cover the entire balance and pay it off at once to avoid the issue.
Disadvantages of Payday Loan Consolidation
If having debt of any kind scares you, you may want to rethink payday loan consolidation. In most cases, consolidating debt involves taking on more debt. Of course, the loan terms are usually better or more flexible.
However, it could lead to a vicious cycle of taking out more debt to pay existing debt. If you plan to consolidate your payday loans, you should have a plan to pay off the new loan. That way, you don’t become reliant on debt to pay for your basic expenses.
Another con to consolidating payday loans is that you may have to borrow a lot of money. Some loans have a minimum loan amount. And if your debt amount is relatively small, you may have to borrow more money than you need.
Ways to Consolidate Payday Loans
For some borrowers, payday loan consolidation is a smart choice, and if you want to do this, you have multiple options. You can find the method that works best for you and your life circumstances to help you become debt-free.
Consider a few ways you can get rid of your payday loans. Some involve more traditional help, while others are great if traditional options aren’t right for you.
The first option you have to get rid of payday loan debt is to get a personal loan. You can visit your local bank or credit union to apply. Some banks will have specific requirements, like a good credit score or a minimum income.
If you meet these requirements, you can get a small personal loan and pay off your payday loans. Then, you can follow the bank’s payment plan to pay off your new personal loan.
Personal loans have fixed interest rates, so your monthly payments will stay the same. You can also get the money quickly to avoid more payday loan fees. If you have fair credit, you can get a loan, but you may have a higher interest rate than someone with a better score.
Payday Alternative Loan (PAL)
Federal credit unions also offer payday alternative loans (PALs), and you can get one if you’re a credit union member. PALs range from $200 to $1,000, and you can pay the loan off in 1 to 6 months.
If you aren’t a credit union member but can wait a month to apply, you can get a PAL. After you reach a month of membership, you can get a PAL. But if you already use a credit union, you can apply now and get money to pay off your payday loan.
A PAL is a great option if you want a smaller loan to pay off your existing balance. You can get rid of the high-interest debt, and you can pay back the new loan within a few months.
You can also use a credit card to pay off your current debt. If you have an existing card, you can make one large payment to close your payday loan. Then, you can either pay the credit card debt off in full or make at least the minimum payment until you pay off the new balance.
If you don’t have a card or your current card has a high-interest rate, you can apply for a new one. Some cards offer introductory rates as low as 0 percent for the first year. Using a new card can save you a lot of money in interest, so it could work well if you know you can’t pay off the loan now.
However, consider your history with credit cards. If you can’t manage your payments, using one to get rid of other debt may lead you into a cycle of more debt.
Ask Friends and Family
Perhaps you have some friends and family with some extra cash. You can ask for their help to pay off your existing debt. They could help you by giving you money directly to cover your payday loan balance.
Or your friend or relative can act as a cosigner on a personal loan. If they have a good credit score, this may help you get a lower interest rate and better terms. This way, you could get the money you need for debt consolidation.
If you do this, make sure you and your loved one have a written agreement. You’re responsible for paying off any loans you take out. Consider if you can trust each other before you get a loan from someone so that you don’t ruin the relationship.
Extended Payment Plan
Some payday lenders can offer an extended payment plan. That way, you can have more time to pay off your debt over a longer period. If you can’t afford to pay off the loan in the short payday loan cycle, you can get the time you need.
An extended payment plan is a smart option for payday loan borrowers that can’t use other options. If you can’t get money from friends or family or a personal loan, a payment plan could be your best option.
The plan lets you get rid of your debt without needing help from traditional financial institutions. However, it could lengthen the time it takes to pay off your loan. So you should keep this option as a last resort.
When to Consolidate Payday Loans
In some cases, getting rid of payday loans with another loan is the best option. You can simplify your debt payments and avoid higher interest rates and fees. If you decide this is the right choice for you, you should consider how to do it.
Whether you want to get a personal loan or ask a friend for help, here’s how you can start your journey toward debt relief.
If you haven’t already, determine how you want to pay off your payday loan. A personal loan is a good option if you have multiple loans with a higher total balance. You can get one loan to pay for everything.
Credit union members should look at PALs for help paying off debt. And people with existing credit cards may want to use those as a debt repayment tool.
If you have wealthy friends and family, you can also ask them to help. You can either get cash directly or have someone as a cosigner. And if nothing else works, you can ask your payday loan lenders for a longer payment plan.
However, these options are only smart if you commit to paying off those new loans. Don’t ignore a loan from a relative or max out your card and not pay it back, as this will only perpetuate a vicious cycle of debt that could only keep growing.
When Not to Consolidate Payday Loans
Consolidating payday loans can be a good option, but it’s not a smart option for everyone. Whether you have a small payday loan or don’t trust yourself with other loan options, you may want to consider some alternatives.
If you don’t have access to the traditional banking system, it will be impossible for you to get a personal loan or PAL. Even if you have a bank account, you may have trouble getting funding if you don’t have credit.
Consolidating your payday loans may also not be smart if you ask friends and family. If you already have money problems or your relationship with them isn’t strong, getting a loan from friends and relatives may only make things worse.
In those cases, you should focus on earning and saving your own money and possibly cutting down on expenses as much as you can until you pay off your existing payday loans.
You could also consider making some extra money with a side hustle, like walking dogs or delivering food. And if you don’t have time for extra work, consider not eating out for a few weeks to save money. Put as much of your income toward your loan as you can so that you can enjoy some payday loan relief.
At the very least, make your loan payments on time so that you can avoid late fees. But the more you can pay now, the sooner you can enjoy overall debt freedom.
Alternatives to Payday Loan Consolidation
If you can’t or don’t want to consolidate your loans, you have a couple of options. These alternatives can be appropriate if you can’t get a traditional loan. But they can also help if you have other financial problems in addition to your payday loan.
If you want to learn about managing your debt, consider getting a free consultation with a credit counseling service. You can learn more about managing your money and avoiding debt and payday loans in the future.
This type of help is great for someone in a not-very-good financial situation. If you didn’t learn about money management, it could be easy to fall into debt. But a good credit counselor can help you learn the right personal finance management strategies to help you get rid of your current debt and flourish in the future.
Another debt management option is to settle on your debt with the lender. This is a smart option if you’ve already defaulted on your payday loan, and a debt consolidation program is out of the question. You can agree to pay part of the total amount of your debt. The lender will then forgive the remaining balance, and you can be on your way.
However, you should create a debt management plan to avoid a similar situation in the future. Whether this means you roll over all of your debts into one, or you check your bank account or credit report more often, do what you need to do. You could then build a better history with the credit bureaus and wouldn’t need payday loans to get extra money.
Deciding What Is Best for You
Payday loan debt consolidation could be a great option for some people, but it may not be possible or work for everyone. A payday loan consolidation program can help you pay off your secured or unsecured debt and get back control of your finances.
However, consolidating your loans may not be the best solution for you. If you’ve already defaulted or need more assistance, look for alternatives. There are many specialized counseling services, and it’s highly recommended that you consult one to help you find the best solution.