Payday loans are a solution for cash-related emergencies or if you need fast cash. Sometimes, the way payday loans are structured may keep consumers trapped in a loop of repeatedly paying supplemental fees to renew or update the same loan and result in long-term financial distress. If you’re stuck in a payday loan cycle, you can consider consolidating your payday debts into a personal loan to help you break free. If you’re wondering what payday loan consolidation is or how it works, read on to find out.
What Is Payday Loan Consolidation?
Typical payday loans have short repayment periods often scheduled to be paid off within a few weeks. This is why many borrowers find it challenging to pay them off within the scheduled time completely. Since payday loans can typically be renewed or extended, borrowers can decide to renew or extend them continuously and, in the process, fall within the continuous payday cycle.
If you feel trapped in a payday loan cycle, you can seek payday loan help through a debt consolidation loan to save on money and your emotional health. A debt consolidation loan groups and pays off all your high-interest loan balances, such as payday loans, into one single lower-interest loan. This helps to reduce your loan interest charges each month, letting you pay down your loan more quickly without constraint.
How Does Payday Loan Consolidation Work?
Payday loan consolidation allows you to pay back the debt over a more extended period in fixed installments, which reduces the amounts and interests you pay.
You’ll apply for a personal loan from financial service providers like banks, credit unions, or other lenders like Real PDL Help. If approved, the lender typically gives you a longer period — one to five years — to repay the personal loan with potentially smaller installments. You can then use these funds to pay off all your payday loans and interests and remain repaying only your personal loan based on the loan terms.
Before you take a large personal loan intending to eliminate payday loan debts, it’s important to review your general finances and create a budget plan to help you stay debt-free. This will help keep you away from a cycle of borrowing and debts again.
Payday Loan Consolidation vs. Debt Settlement
Typically, “debt settlement” is an agreement with the lender for the debtor (borrower) to pay less than the balance owed, usually as a single lump-sum payment. Many lenders agree to a debt settlement if a debtor is under financial distress or those “nearing bankruptcy” to obtain a substantial portion of the amounts owed, leaving the entire loan at risk. However, most debt settlement companies charge high fees for debt settlement with the lender, and the process can significantly damage your credit.
Debt settlement works differently from payday loan consolidation programs, where the fee and reduction in interest over the course of the repayment plan represents the settlement. This reduction can be substantial depending on the debt amount with a less total amount paid than it would have been and with little to no effect on credit.
Payday loan consolidation can mean saving large amounts of money. When the fees and interest of the debt stop accumulating, and you manage to stop the payday loans from rolling over, get out of debt much quicker. It’s a perfect way to shrink your debts and reduce your installments.