Everyone reaches a point in life when they need to borrow. This is more so when an emergency strikes, and you don’t have cash on you or your check won’t clear until another few days or weeks.
This is where payday loans come in quite handy, and with so many lenders offering these loans online or through mobile apps in under 5 minutes, one thing is for sure. The temptation to borrow from multiple providers cannot be overlooked, and this could make it harder to keep track of your repayments.
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To avoid the stress, surprise penalties, and harassment from different lenders, debt consolidation is often a great way out.
In this piece, we shall look at payday loans, consolidation, and how to get out of these expensive loans before they wreak havoc on your financial wellbeing.
What’s A Payday Loan Exactly?
As the name suggests, a payday loan is an amount of money borrowed on the promise that the borrower will pay it back with interest as soon as they receive their next paycheck. It’s usually short-term, high-interest, and involves small sums of money. A payday loan can be secured through various lenders, mostly online or through mobile lending apps.
Perks Of Payday Loans
Perhaps the biggest advantage of payday loans is that approval is usually fast, with little to no paperwork involved. In some cases, the lender will barely consider your credit score, making it a great solution when you have cash emergencies.
It’s also important to note that you don’t need to show assets to prove you’re eligible for it. Lots of people in the Philipines are taking out a personal payday loan without a bank account allowing them to secure funding without the need for traditional collateral. For instance, you can get a payday loan without a bank account in the Philippines by showing employment history or proof of income.
Disadvantages Of Payday Loans
Payday loans are usually associated with high-interest rates, making them super expensive compared to other kinds of loans. Moreover, the loan term is incredibly short – most payday loans are usually due between 15 and 30 days after borrowing. Penalties and hidden fees are also a possibility depending on the lender you approach.
4 Ways to Consolidate Payday Loans
If you have several payday loans, it can be incredibly difficult to keep track of repayment dates. This makes payday loan consolidation a great way out, especially if you need to protect your credit score.
Loan consolidation simply means taking out a single loan to pay off all other existing loans, so you’re left with just one loan to finance.
Some excellent ways to consolidate payday loans include:
1. Take Out a Personal Loan
A personal loan can be a great way out of payday loan debts. This is because you can get anything between $5000 and $100000, which will most likely be enough to clear off all your payday loans. The biggest advantage here is that personal loan interest rates are incredibly lower. For example, personal loans from SoFi even offer a low fixed rate of as low as 6.99%.
2. Borrow from Friends and Family
If you’re completely out of options, it doesn’t hurt much to approach friends and family for financial assistance. It could be a good option, especially if your payday loans are not so piled-up or involve exceptionally high amounts.
However, not all friends may be willing to lend a hand with your financial miscalculations, so this may not always be the best option.
3. Use a Home Equity Loan or Line of Credit
Largely because they are secured, home equity loans or lines of credit are often cheaper than payday loans. Taking one can be a great way to lower your interests, as well as your monthly payments since these loans are highly flexible.
4. Consider Filing for Bankruptcy
This should be the last option you think about when trying to get out of any debt burden, let alone payday loans. In some cases, bankruptcy chapter 7 may help you discharge your payday loans, but many payday lenders indicate the debt isn’t dischargeable in the paperwork you sign when applying for one.
As much as they come in handy during cash emergencies, payday loans can be a financial trap if not well managed. And if you take several of them, debt consolidation becomes a great way out of the financial agony they might cause in the future. The above tips will hopefully enlighten you about these loans and how to avoid getting trapped in the cycle.