Payday loans can create a cycle of borrowing over and over. The fees for the loans are quite high and make it difficult to catch up and break free of the payday loan cycle. Consolidating your payday loans into one loan with a set monthly payment may be one way to break free of the payment cycle.
Consolidation Loan
A consolidation loan is a loan that gives you money to pay off several smaller loans. These loans will have set terms with a monthly payment amount, and generally have a set interest rate. The payment amount will be lower than the total you have to pay each payday. This can give you the opportunity to break out of the payday loan cycle and budget so you can afford the smaller monthly payment.
Finding a Consolidation Loan
Some payday loan businesses may be willing to offer a consolidation loan, buy you should consider all options before choosing one. Apply for a loan at a bank or a credit union. These places usually have better terms than the payday loan offices. The interest rate will not be as high. You can apply for a signature loan, a loan with no collateral, or use a car title as collateral to qualify for the loan. Take the proceeds from the loans and pay off all of your payday loans immediately.
Danger of Payday Loans
Payday loans are dangerous because they demand immediate full payment at the time of your next paycheck. This means that you start the next month or week with less money than you normally would have. If you are barely making it from paycheck to paycheck, you will likely need to get another payday loan. The fees associated with the loans are high and if they are converted to an interest rate you will be paying that are often much higher than a credit card. Using credit cards may be a better option than taking out a payday loan.
Alternatives to a Consolidation Loan
Many people who use payday loans have a poor credit history and may have a difficult time qualifying for a consolidation loan. If this is the case for you, you may need to use something as collateral for the loan. You may also need to do something else to solve the problem such as getting a second job until the loans are all caught up and paid off. Consider visiting a credit counseling service for help on creating a budget.
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