How To Consolidate a Payday Loan – For people struggling with income reduction or unexpected bills, payday loans seem to be the best option. Even though you plan to use it once, the significant fees on this loan can be hard to break off from.
According to the Consumer Financial Protection Bureau, about 12 million Americans use payday loans every year. If you would like to get relief from your debts, here is how to consolidate a payday loan.
What Is a Payday Loan and Payday Loan Consolidation?
A payday loan is a high-interest, short-term loan created to help borrowers with urgent cash temporarily until their next paycheck. Typically, this type of loan is in small amounts, around $500. However, the amount is determined by the lender and the state you are in. Moreover, some states impose maximum fees on payday loans. In addition, payday loans have higher annual percentage rates (APRs) than personal loans.
On the other hand, loan consolidation is the process of joining or combining different existing payday loans under a new personal loan. You will be making monthly payments to pay off the loans at a lower interest rate.
How Does this Process Work?
The payday loan consolidation process is very easy to understand. First, if you would like to perform this process, you will have to visit a bank, credit union, or online lender to apply for a personal loan.
Once your application is approved, you will get a lump sum of money. With it, you will be able to pay off your debt through your payday lenders. Then, you will have to make monthly payments on your new loan until you pay it off completely.
How To Consolidate a Payday Loan
These are the common steps that you need when you are taking out a debt consolidation loan. However, remember that the application process will differ. So, here is what you need to do:
- Sum up your debt.
- Search for the best loan lender.
- Apply for the loan and get it approved.
- Pay off your lender.
Sum Up Your Debt
Before you apply for or consolidate your payday loan, you need to add up or sum up your current loan balance for your debt. Besides, personal loan amounts vary depending on the state and lender you choose. But normally, it begins at around $1,000, which means that you require around $1,000 in your payday debt to apply.
Search for the Best Loan Lender
Secondly, shop around for the best lenders. This process can be carried out online or even physically. You can also check for reviews online from customers who have used their services to find out if the lender is suitable.
If you would like to compare loan offers from lenders, the best way to do so is to qualify. So, this short process will help you find out what loan rate, term, and amount you might qualify for. What’s more, you do not have to worry about your credit score. Although most online lenders offer pre-qualification, not all lenders do so.
Apply for the loan and get it approved.
Once you have selected a lender you would like to use, you can proceed with the application process. So, to do so, fill out the application form online or physically. Do not forget to gather and provide your personal information, like contact details, social security number (SSN), and address. Proof of income, identity, and employment are also required.
Pay Off Your Lender
After your application has been approved and you are credited, you can visit every payday lender you use and pay back the debts. You must use the money only for debt repayment purposes. This is because if you use it for something else, your debt becomes deeper.
The Best Debt Consolidation Loans
Here are some of the best platforms on which you can apply for good debt consolidation loans with the best interest rates and terms:
- Discover personal loans.
- Best Egg.
- Happy Money.
- Universal Credit.
- Reach Financial Personal Loan.
- OneMain Financial.
- PenFed Credit Union.
- PNC Bank Personal Loan.
- Wells Fargo.
So, if you need some suggestions when shopping for a personal loan for debt consolidation, here are some ideas.
Alternatives to Payday Debt Consolidation
If you do not want to take out a payday loan in the future due to an emergency, there are some nice alternatives that you can choose from. Besides, one of the most effective ways to avoid taking out this type of loan is by building an emergency fund. Although doing so takes time, you do not have to ever think of or consider a payday loan. Here are a few other alternatives:
- Buy now, pay later.
- Small-dollar Loans.
- Cash Advance apps.
- Payday alternative loans.
- Side hustle.
- Personal loans.
- Negotiate debts.
- Credit counseling.
- Borrow money from friends or family.
- Debt settlement.
You can consider a payday loan if you can qualify for a new loan and clear your high-interest payday loan debt.