If you are working and receiving a monthly paycheck, you may get it all spent by the middle of the month. With the previous month’s pay is almost exhausted and the month-end payday just seems so far away and should emergencies requiring unexpected expenses strike, you may need to take out a payday loan. A payday loan is a loan which you have to repay by the time you get your next paycheck.
Payday consolidation is a kind of loan that allows you to clear all the payday loans that you may have. We all know payday loans could be quite expensive to pay back. So payday consolidation loans act as a lifeline for someone who is about to get drowned by what is known as a payday loan cycle. Read on to find out more about it.
What is a payday loan cycle
You may decide to take out one payday loan to relieve a tight financial situation. Then another emergency hits, forcing you to take out a second payday loan. Now you have two payday loans to pay up with your next paycheck. Payday loans are designed to have very high interest rates. You will realize that the annual percentage rate (APR) of the payday loan is between 300%-400%, making it the highest in the market. The worse thing is most payday loans are supposed to be paid within 30 days, meaning you need to repay a large sum of money all at once.
Looking at this situation, you may need to get another payday loan to facilitate the payment of the previous payday loans. Month after month, it’s a debt cycle you are trapped in. This situation plunges you into more debt. This is mainly because of the huge interest rates typical of payday loans. Getting out of payday debt is just pretty hard unless you get help.
Taking a payday consolidation loan
A payday consolidation loan is what people call a financial lifeline. Taking a consolidation loan lets you breathe easier. Basically, it’s all about breaking this vicious cycle. A consolidation loan lets you combine all your outstanding payday debts into one. This means you now only have just one consolidation loan instead of multiple payday loans to deal with. Furthermore, a consolidation loan has a lower interest rate, allowing you to relax and not worrying that things will get out of hand.
Alternatives to consolidation loans:
Taking up a consolidation loan give you a couple of choices to choose from. Okay, let’s face it, the most probable reason you went to a payday lender is because you have bad credit and thus you cannot get the low-interest traditional loans. The only alternatives that you have at this point is hoping you can qualify for a high-risk secure loan with a different lender. In this case, you could use the valuable items you have as collateral in order to access the loan. This will get you the money that you need to allow you to clear up the numerous payday loans that you may have and in turn be left with this particular loan to pay as time goes by.
The next alternative is taking up a high risk secured personal loan. This, like the previously discussed loan will let you sort out the sticky situation that you are currently sitting in, and thus giving you breathing space for you to relax, work and repay this loan slowly without worries of having lenders coming after your hard earned cash.
Paying up your current debt with a consolidation loan
Consolidation loans let you get your freedom back and let you get your finances back in order. The major advantage here lies on the interest accumulations. Looking at the payday loans, they have an interest rate of about 25%, translating to an APR of about 300%. The consolidation loan has way lower loan interest rates.
The other advantage with a consolidation loan is that you can repay in monthly installments without having to cough up a single big amount at once. This gives you more breathing space and reduces stress.
You probably have destroyed your credit score when you applied and received payday loans. However, this is not always the case. This is because most lenders will not make their way to the credit bureau to report your financial situation. Thus your credit score stays secure.
Consolidation loans allow you to manage your finances and let you pay lower rates for the same debt you had. It has a number of advantages and very few disadvantages. That is what makes consolidation loans attractive. Though consolidation loans also cost you money, but compared to the payday loan situation you are escaping from, it’s quite a small price to pay.