The Facts about Debt Consolidation and Payday Loans


If you're tired of paying multiple credit card bill or loan payments each month, debt consolidation could be the ideal solution. You take out a debt consolidation loan, pay off your debts, and then make one payment on the consolidation loan instead of paying on multiple accounts.

Homeowners may be able to refinance their mortgage to consolidate debt, or you may be able to take out a personal loan or debt consolidation loan from your bank. If you don't qualify for traditional types of loans, you could take out a payday loan to consolidate debt.

What are Payday Loans?

Payday loans are short-term, unsecured loans that are widely available from specialized lenders online. They are very easy to obtain, and in most cases, you can be approved for a loan in 24 hours or less. If you have steady income and a bank account, you can be approved for a payday loan. There's no credit check, so even those with bad credit can be approved.

The amount you'll be able to borrow is based on your income, but in general, people borrow between $200 and $1,500. Funds are deposited into your bank account within 24 to 48 hours of approval, and your payment will be automatically deducted, as well. Payday loans are flexible as well as convenient, as lenders don't ask or care how you spend the money you borrow. This means you could easily take out a payday loan for debt consolidation purposes.

Evaluate Costs

The question of whether or not you should take out a payday loan to consolidate debt isn't an easy one. Each individual's situation is different, and everyone must decide for themselves what's in their best financial interest. The following are a few basic guidelines to consider if you're thinking about consolidating debt with a payday loan.

First, you must consider the costs associated with the payday loan. Interest rates and fees vary among lenders, so don't estimate. Pick an amount and a lender and figure out the actual costs.

Next, determine how much it is costing you to continue to carry your credit card debts. If you're only making minimum monthly payments on some or all of your debts, it's possible you've already paid more in interest than the payday loan you use for debt consolidation will cost. It may be that the convenience of eliminating one or all of your debts will make the cost of the payday loan more than worthwhile.

Borrow Responsibly

Payday loans are designed to be paid off in a very short period of time, usually within only two or three weeks. It's important to only borrow as much as you can afford to pay back in full on time.

It's their short term nature that makes payday loans a good choice for consolidating debt for many people. It's possible you could bypass the payday loan and commit to using a large portion of your next paycheck to pay off one or more credit cards. Yet because credit card companies only require a low minimum payment each month, paying off the balance isn't imperative. It's very easy to put off paying balances in full, even with the best of intentions. A payday loan can provide the incentive many people need to pay off their debts instead of continuing to carry costly balances.

Using a payday loan to consolidate debt makes good financial sense for many people, but it won't be the best solution for everyone. If you're struggling to make minimum payments and you have a substantial amount of debt, borrowing with a payday loan might not be the best solution.

Entering a debt consolidation program may be the best choice for anyone struggling with substantial consumer debt. Professional debt consolidators can negotiate on your behalf to reduce fees and interest, and you'll only need to make one monthly payment. Such a program will allow you to pay off all your debts over time.

Look to the Future

If you opt for debt consolidation through a payday loan, it's important to take steps to ensure you don't end up in the same situation in the future. Once you have credit card balances down to zero, consider closing the accounts. You won't be tempted to start charging again if you don't have the option.

While some people choose to keep one credit card for "emergency" use only after debt consolidation, it's really not necessary. A better choice might be to use cash or a debit card linked to your bank account for purchases. This is one easy way to avoid spending on credit. Start a savings account for cash flow emergencies. Should something come up before you're able to build up that emergency fund, you can always rely on a payday loan for fast access to the cash you need.