Debt Consolidation Methods For Escaping Via Your Payday Loans

Payday loans, also called open door loans can actually be a lifesaver at times. When you are in the need of urgent cash and cannot wait till your next paycheck, payday loans are the best way to go.

If you don’t have cash set aside for such financial emergencies then you may not have any other solution except taking out a payday loan.

Since, payday loans are smaller loans of short time periods they also charge a high interest rate. Their interest rates are usually 30 percent or above and it has to be returned by your next paycheck. In fact the paycheck is the collateral on which the loan is issued.

However, when you are in need and have access to instant cash, the interest doesn’t seem so high at that moment.

The Payday Loan Debt Trap

A lot of people do not fully understand the pay day loan charges. That is why people end up falling into a debt trap when they are unable to pay back their open door loan. What they don’t anticipate or think through is that almost all their next pay will be gone for paying off the payday loan and they will be left for almost nothing for the next month’s budget.

That is when they end up carrying the loan into the next cycle, incurring even higher interest rate and penalties. Either this or they can incur more debt on their credit card.

A payday loan can be taken for anywhere between 15 to 30 days. Extend it any further and you will be incurring higher interest rates and payday loan charges. That is when people end up seeking debt management plans because the best options available for help.

Getting Debt Consolidation For A Payday Loan

Debt consolidation will help you bring down the monthly payment that you have to make on your payday loan. This can be done by taking a debt consolidation loan and using that to pay off the payday loan. Debt consolidation helps you pay off your high interest rate payday loan by taking out a lower interest rate loan.

In effect you are able to get rid of your high interest rate payday loan and replace it with a low interest rate of under 10 percent on your debt consolidation loan. Debt consolidation will move your multiple loans and their payments into one single loan and repayment plan.

This is much easier to manage and has a lower interest rate too. Debt consolidation loan works best if you have a good credit score. Here are the methods of debt consolidation that will help you get best results.

Unsecured Debt Consolidation Loans

These unsecured loans only require a good credit history. This is the best option in case you don’t have equity to set up as collateral for other loan options. The good credit history will ensure that you get a low interest rate.

Balance Transfer

Do some researches and look for a credit card company that offers the lowest interest rate. Now pay off your payday loan using this credit card. If you have any other debt then use this new credit to pay them off too. You have now consolidated your debt into one credit card debt. All you might have to do is pay the balance transfer fee which is usually minimal.

Home equity loans

Use your home equity loans to pay off your payday loans and consolidate it. The home collateral will give you a better interest rate on the loan as well.

Conclusion

Debt consolidation loans are part of the debt management plans offered by debt counseling agencies. They help you with a reduction in the current interest rate that you are paying and set up the repayments of your loan through their agency. This is to ensure that your debt doesn’t get out of control.

The only problem that one can face in making this replacement is if they have a bad credit history. Then you won’t be able to get a loan on the lowest interest rates and repayment schedule. However, even in this case, the interest rate will still be much lower than what you are paying for the payday loan already. So you get an advantage from it anyway.