Payday loan consolidation loans are loans that are taken out to pay off current accumulated debts. The accumulated debts are transferred into one manageable debts with only one monthly payment. The consolidation loans reduce your debt interest rates and monthly spending. Many payday consolidation loans include secured and unsecured loans. However, it is always advisable to educate yourself about the available loan merging loans that you can use.
Types of payday consolidation loans
Home equity loans
A home equity loan is a secured loan that is taken using your home equity as collateral. However, you must have a fair amount of home equity and good credit score to qualify for a home equity loan. Many homeowners prefer this type of loan consolidation because it features lower interest rates as compared to other debt consolidation loans. However, its main disadvantage is that your home is put on line for the debt. If for some reason you are not able to settle the loan within the given time, you face foreclosure. Therefore, it is not the best loan for consolidation.
Personal loans are unsecured loans for consolidating debts. They feature fixed repayment amounts over a fixed period. They are mainly offered by traditional banks and lending institutions and require the applicant to have a good credit score. Before applying, ensure that the set repayment period will not cause further financial constraints and the interest rates ought to be lower than the current debt rates. Ensure that you can clear the regular payments comfortably. People with bad credit reports may be approved but at higher interest rates and monthly charges. A personal loan is ideal for a consolidation if the payday loan is low and you have a great credit rating.
Credit card balance transfers
Credit card balance transfers involve the transfer of all credit card debts into one single credit card. They have lower interest rates that last for a specified period since they are mainly promotional. Therefore, if you choose this consolidation method, ensure that you know when the promotion will end and the interest rates that will take effect. In most cases, the promotional period ends within one year. If the promotion period ends without you having completed your loan repayment, consider transferring the balance to a lower interest credit card. However, consolidating all your credit card debts into one card could have some negative effect on your credit score.
Debt consolidation loans are usually offered by traditional banks, credit unions and lending institutions with an aim of combining all your debts into one debt. However, they vary from one lending institution to another. Therefore, you should choose wisely the loan that will charge low interest rates so that you are able to lower your monthly payments through increasing your loan repayment period. See also BBC news.
It is important to understand that consolidation of payday loans only clear your payday loan debts and incur another type of debt. You shuffle the debts so that you are able to pay it without straining. However, consolidation may make you feel like you have less debt and get tempted to borrow more money. Therefore, try to remain disciplined and avoid further debts until you have cleared your current consolidation debt. Remember that the amount of payday loan consolidation loans are determined by your credit score, amount you are borrowing and the repayment period you choose.