How to Consolidate Payday Loans to Get Out of Debt?
You can consolidate payday loans, get out debt and sleep better at night. Read our latest guide looking at payday loan debt consolidation and how it works. This post may change your debt approach and really help you to improve your personal finances.
So, What Is Debt Consolidation?
Debt consolidation is a way for people in debt to make their debt repayments more manageable. It involves taking our more credit and using that credit to pay off more than one other debt. For example, you might have three debts of £100. You then take out £300 of credit and use this money to pay off the three debts.
Instead of having three debts you now have one debt!
But it is not that straightforward. By consolidating your debts, you do this to be able to make repayments more manageable. For example, your new interest rate may be lower or you pay less back each month but for longer.
That Makes Payday Loan Debt Consolidation….
If the process of debt consolidation involves relocating multiple debts into a single debt, that makes payday loan debt consolidation the process of consolidating multiple payday loan debts into another loan. This can also be done with credit cards too by taking out a new credit card to pay off the other credit cards.
Many loan providers will even advertise loans specifically for this purpose, aptly called debt consolidation loans. You can find these with some high-street banks or use other payday loan providers.
Can Everyone Use Payday Loan Debt Consolidation?
Payday loan debt consolidation requires the person in debt to take out another loan. Getting more credit when you are already struggling to pay your existing debts can be problematic. This is because your credit score influences how likely you are to get credit and loans. If your credit score is poor, loan providers and banks are unlikely to lend you money to consolidate your debts.
Yet, some people can still get credit while they have some debts. And because debt consolidation loans exist for this purpose, these may be available to you.
Payday Loan Debt Consolidation (Step-by-Step Guide)
The first step is to work out if debt consolidation is the right thing for you to do and if you can benefit. This will mean speaking with debt advisors (we will tell you how to get free debt advice later!) and doing your own research.
If a debt consolidation loan is recommended, you then need to find a provider and apply for their loan. It is important you don’t go and apply for lots of debt consolidation loans because scattergun applications can ruin your credit score and prevent you from getting the debt consolidation loan.
And just as important, you need to make sure the terms of the new loan will be beneficial to your situation. There is no point in consolidating your debts if you then have to pay more in interest or higher monthly repayments.
Taking out a debt consolidation loan should take time and lots of research. Look at reviews of debt consolidation loan providers online for more help to make a decision.
Can Payday Loan Debt Consolidation Reduce My Credit Score?
Maybe, but it could also do the opposite and increase your credit score.
Your credit score is affected by your ability to keep up with repayments on time and to the correct amount. If you take out a debt consolidation loan and repay your existing debts, this will not make your score go down. After all, you just paid off debt!
How your credit score is affected by a debt consolidation loan will depend on your repayments. If you repay the correct amount on time, you will display sensible managing of your money and your credit score could increase. However, miss repayments or fail to repay the full amount and your credit score will get worse.
Payday Loan Debt Consolidation Advice and Help
If you are unsure if a debt consolidation loan is the best way for you to tackle your payday loan debts, why not speak to a debt charity today? These charities can assess your situation and decide whether a debt consolidation loan or other solutions will be more advantageous for you.
You can also get advice from debt management companies, but be aware, other debt solutions can be more profitable to these commercial businesses so you might be recommended other solutions when a debt consolidation loan is just as beneficial.
Alternatives to Payday Loan Debt Consolidation
An alternative way to pay off multiple payday loans without using a debt consolidation loan is called The Snowball Method.
We have written a complete guide on The Snowball Method and how it can be effective.
In summary, this is a method for people with multiple debts. The debtor should use their disposable income to pay off the minimum amount needed to be paid each month. And then use any extra disposable income to pay off one of their debts. Every month, extra income is used to pay off this debt only until it is eventually paid off, and then you move on to the next.
It is a way of targeting one debt while not falling behind on others. It is best used as an early strategy to get out of debt.
Discover More Ways to Get Out of Debt in the UK
Debt consolidation is just one way to get out of debt in the UK. There are lots of other options for people with debts they have because they didn’t repay payday loans on time. Debt Management Plans, Debt Relief Orders and Individual Voluntary Arrangement may all be a better option than a debt consolidation loan.
Assess your options by checking out our debt options page – and by speaking with UK debt charities!