Payday Loans Debt Consolidation

No one wants to take out a payday loan but sometimes circumstances arise that leave people with little choice even though personal loans is usually the better recommendation. Most payday loan lenders do not do a full credit check, they only check whether or not one has a legitimate source of income. They also payout the same day in some cases. For these reasons, payday loans are often used, albeit reluctantly, by people who need cash now.

The drawback is the high-interest rate and short payback period, with even harsher penalties for late or missed payments. It is easy to find oneself in the payday loan trap.

Payday Loans Debt Consolidation – A good solution

Payday loan consolidation is a good solution for getting out of the Payday Loan Cycle. By taking out a new loan to pay off the debt amassed via the loans taken out you can reduce your monthly payment but also get a lower interest and fees. Loan consolidation, debt consolidation and a debt relief loan is basically the same type, all which usually is a personal loan.

A Payday Loan Consolidation can help

The principle of a Debt Consolidation Loan is simple. An individual who owes money to many different creditors takes out a loan to pay all their debts thus reducing their monthly payments. They are then left with one monthly payment to worry about. Consolidation Loans for payday loan debt is a very good idea for several reasons…

  1. High Interest Rates: When you consider the interest and the high cost of fees associated with payday loans it makes sense to secure a consolidation loan as even though the interest rate may not be low on the loan it can be safely assumed that it will be lower than the payday loan. These loans charge the highest interest possible and have extremely high fees which is not typical of most lenders.
  2. Escape The Payday Loan Trap: research has shown that the most dangerous aspect of payday loans is getting trapped in the cycle. With a payday loan consolidation, you can stop the cycle by paying the debt off and not needing to secure another payday loan a short time later.
  3. Increase Pay Off Time: One of the main issues that people have when it comes to paying off their loans is the short pay off time, usually a week or two. This does not allow them to save any money and often leaves with no money once again. A payday loan relief can allow one to pay back the debts in a much longer period, allowing for breathing room.
  4. Decrease Debt To Income Ratio: As stated above, the most difficult part of a payday is that there never seems to be enough time to get ahead of it, and never enough money to pay the debt when it is due, or causing one to spend all their money on their loan.

A debt relief cannot decrease the amount of the principle, but it can increase pay off time to much more lengthy periods. This allows the individual to put less of their paycheck towards paying off the loan and use that money to work on improving their credit score.

Payday Loan Debt Consolidation With Bad Credit

Although in theory, while payday loan consolidation is a good practice, it may prove difficult for some. After all, the initial allure was that no hard credit check is performed. It can be safe to assume that most who end up going the route of payday loans do so because they have bad credit and lack other options.

Luckily, even if you have a low credit score of 500 one can receive for a Consolidation Loan is likely to be favorable over the fees and interest that come with a payday loan. Let’s look at some options for payday loan debt consolidation for those with bad credit.

  1. Lowering Credit Utilization Ratio: Ones credit score is not determined only by payment history. A number of other factors are included. One of these other factors is called Credit Utilization Ratio. Simply put, it is the percentage of one’s total credit being used. For example, if an individual has $5000 in credit extended to them across credit cards and personal loans and they have used $2000 of that $5000, they would have a credit utilization ratio of 40%. If one’s credit score permits them to, opening a new credit card and maintaining the balance at $0 is a good way to lower ones credit utilization ratio. This does require some discipline, but adding credit that one does not use will lower ones Credit Utilization Ratio.
  2. Lower Income to Debt (DTI) Ratio:The less of ones gross monthly income is put towards paying off debts the more likely it will be that a lender will lend them money. Even if one has good credit, if their monthly income does not allow for them to take on new debts most lenders will not extend to them new credit.
  3. Applying To More Than One Lender: Lenders have highly varying criteria between one another. Applying to various different lenders can afford an individual the opportunity to see what their options are. The initial application process only uses a soft credit check and for this reason it will not affect one’s credit.
  4. Split Loan Into Multiple Loans: Sometimes lenders are not comfortable with lending to much money to someone with bad credit. A better solution here would be to split up the loan into two separate ones. This may not be necessary for a payday loan, although if one does have a high amount of payday loan debt this may be a good option. Even if only a portion of the payday loan debt can be consolidated it is still worth it just to minimize the interest and fees associated with payday loans.

The Payday Loan Trap

The payday loan trap is simple. People find themselves in an emergency, needing money they do not have. Out of desperation, they end up settling with a payday lender with huge interest rates and fees hoping that the payday loan help. Two weeks later they find themselves at another payday loan institution borrowing money to pay the first lender. The fees pile up, and the debt gets bigger and bigger. This is a common cycle for those who take out payday loans and the best to do is to stop and strategize a debt management.

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