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Payday loans have become popular in recent years because of how they provide borrowers with the option to get access to emergency funds quick. However, they are known for their very high interest rates as well. This is why it is so easy to slip in a debt trap especially if you happen to take out a number of these short-term loans.
You wouldn’t want to reach the point where you are no longer able to afford the repayments because your debts are just going to balloon out of proportion. If you are already finding it a struggle to keep up with your repayments now, one good way of managing and effectively clearing the debt may be to consider debt consolidation.
How to Use Payday Loans To Consolidate Debt
A payday loan consolidation works best for customers that have taken out high interest loans. It offers borrowers the chance to get all their debts combined together into one single debt is paying it off becomes easier, more manageable, and less confusing. It also fuses the interest rates into just one, thus, giving an opportunity to save money in the process. Consolidating your debts means making just one affordable monthly repayment instead of having to take care of a number of them. This allows you to have better control over your finances.
Consolidation is practical since it allows the borrower to put all his debts in one single place, effectively making it easier to manage and pay off. It makes it easier to keep track of what is going out of your account and when the payments are due too. Thus, allowing you to stay on schedule.
Is payday loans consolidation good?
The main advantage of consolidating your payday loans is to clear off debts that are costing you a lot of money interest-wise. It effectively puts a stop to the excessive charges and interest rates you are being charged with, thus preventing you to accrue even more debt in the process.
It is also one way of simplifying your finances. Instead of making several repayments for a number of small loans, you just make one single payment every month.
Is payday loans consolidation bad?
Consolidation loans are often secured against a property or any valuable asset. There is the risk of you losing this asset in the event that you will fail to make the repayments, which can be a huge downside. This is not a risk that you would have to face if you were only paying regular payday loans.
Paying off a debt consolidation loan can take a few years since you'll have to borrow a considerable sum to pay off all of your combined debts. Meanwhile, payday loans are meant to be paid off in the short term. There is a possibility that you might end up paying more on total interest as a result.
Getting approved for credit products is tough when your credit is bad. Even when you are borrowing money to consolidate your debt, to take better control of your finances, you are expected to have a sound credit score before lenders will even consider your application.
However, options to get debts consolidated even when your credit is bad do exist, albeit limited. The terms and the pricing will not be the most attractive as well. Still, it helps when you know what to look for and what to expect when you shop around so you know you are sending your application to the lenders which you know you are most qualified for.
Benefits of debt consolidation
One of the reasons why it is practical to consolidate debts is because they eliminate the hassle of having to make repayments to numerous lenders monthly. You only get to have one single payment to make every month when you consolidate your debts. No, your debt does not get reduced. But you get the convenience of being able to keep track of your repayments a lot easier since there is just but one.
Qualifying for debt consolidation
Your credit range matters considerably when taking a debt consolidation loan. It may be difficult to get approved when your score is considered poor since lenders will generally see you as risky. There is also the possibility of you getting a really high APR, even higher than what you’re presently paying for, when you consolidate your debts through a loan while having a poor credit score. Your creditworthiness will always come into play when lenders assess terms and rates for loans and if you have bad credit, this will not always bode well for you.
Debt consolidation for bad credit borrowers
Your income can also be factored in when lenders decide whether to lend you money or not. When you already have multiple debts to your name and your income is low, you’ll further lower the chances of you getting approved for a loan to consolidate your debt. Lenders will infer that it would be so much harder for you to pay off what you owe when you already have a considerable amount of debt piled up already.
You’ll have to go through a credit check too, as you are applying for a loan. Needless to say, the current state of your finances will not make you look too good when lenders try to check the state of things. If you are struggling to find a lender who can help consolidate your debts through a loan, you can present a guarantor. This is a person with a good credit rating that will serve to take on repayments if you fail to pay off the loan. Taking steps to improve your credit score before getting a debt consolidation loan might help.