What is Payday Loan Consolidation?

Payday loans can be tricky for borrowers. Not only do they have short repayment periods, but they also tend to come with high interest rates. These factors can make it difficult for borrowers to repay these loans promptly, if at all. In some cases, borrowers may choose to “roll over” the loan, which means paying a fee to delay repayment. While this may seem like a nice option to have, it can actually cause borrowers to owe more than they originally borrowed. 

Those struggling to manage multiple payday loan repayments can consider payday loan consolidation. Consolidating payday loans means combining multiple existing loans into one lower-interest loan with monthly payments.

Payday loan consolidation can help borrowers reduce monthly payments and extend the repayment period by combining them into one personal loan that has lower interest rates. This can also simplify how you pay off the loans; rather than tracking multiple repayment terms and due dates, you can focus on a single loan repayment.  

What Does the Payday Loan Consolidation Process Look Like?

Credit unions, online lenders, and banks each offer personal loans for consolidating payday loans. Once you are approved for one of these personal loans, you receive a lump sum of money that you can use to pay off payday lenders. Then, you simply make payments against your new personal loan until it is paid off. 

How to Consolidate Payday Loans

The following five steps are essential when it comes to payday loan consolidation. 

Step 1: Add Up Your Payday Loan Balances.

Begin by adding up your current payday loan balances to see how much money you’ll need to borrow with a new personal loan. Personal loan amounts often range from $1,000 to $5,000, so it may only make sense to go this route if you have at least $1,000 in payday debt. 

Step 2: Shop Around for the Best Loan.

Shop around and compare loan options from different lenders once you have determined the amount you need to pay off your debts. A credit union or online lender may be more willing to lend to applicants with a bad credit score.

Step 3 – Get Pre-qualified.

Getting pre-qualified is a great way to compare loan offers. Not only can you see what loan amounts, rates, and terms you qualify for, but it doesn’t hurt your credit score. While many online lenders offer pre-qualification, some more traditional lenders may not. 

Step 4 – Application and Receipt of Funds

After you choose a lender, the next step is to apply for a loan. You will need to provide your Social Security number, address, and contact information online. 

Additionally, you must provide proof of your identity, employment, and income. Generally, you’ll receive funds within one week after signing the loan agreement, although some lenders may offer same-day funding.

Step 5 – Pay Your Lenders and Then Your Loan

Once you receive the money from your personal loan, use it to pay off all of your payday loan debts. Then, prepare a plan for paying off your personal loan so you can stay on track. Payments missed 30 days, or more past due can be reported to the credit bureaus, which can adversely affect your credit scores.

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