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Is there a debt consolidation for payday loans?

Payday loans have grown in popularity over recent years. They allow you to borrow small sums of cash for a short period of time to help you meet unexpected bills or to improve your cashflow.

However, interest charges and fees on payday loans can build up quickly. So, if you’re struggling to pay back your payday loan, you may have to consider debt consolidation as an alternative.

Here, we look at what payday loans are and the advantages and disadvantages of using debt consolidation to repay a payday loan.

What are payday loans?

Payday loans allow you to borrow a small sum of money over a short period. Typically lending is arranged for a matter of a few days or weeks and the maximum you can borrow is generally around £1,000.

Interest rates on payday loans can be extremely high – over 4,000 per cent in some cases – and so it is crucial that you can pay it back the loan in full when the repayment becomes due. If you try and use these loans over a longer period they become very bad value and can lead to spiralling debt problems.

The main thing to remember is that you should not borrow money this way unless you are absolutely sure you can pay it back in full on the due date. However, in some cases you won’t be able to repay the loan. Perhaps you have several payday loans running at once or you simply can’t find the cash? In this case, you may want to consider a debt consolidation solution.

What are the advantages of using debt consolidation for payday loans?

Payday loans are a fast and easy way to get cash when you really need it. However, if you are not able to pay them back in full and on time, the interest and penalty charges can mount up quickly. You can often end up owing far more in extra charges than you borrowed in the first place.

If you can’t repay your payday loan it is important to consolidate it as quickly as possible. If you don’t, your debt will continue to mount up rapidly until you pay it off.

A debt consolidation loan lets you borrow money – often secured against your home – in order that you can repay other debts such as payday loans. The main advantage of a debt consolidation loan in this situation is that you can clear your expensive payday loan. This will stop you having to pay excessive interest and charges and will prevent your debt becoming even larger.

In addition, a debt consolidation loan can simplify your finances. Instead of multiple small loans and several repayments, a debt consolidation loan means you pay one single monthly payment to one lender.

What are the disadvantages of using debt consolidation for payday loans?

Debt consolidation loans are perfect for paying off other borrowings with high interest rates. For this reason, they can be an excellent solution for repaying payday loans.

However, there are some disadvantages of taking out a debt consolidation loan to repay a payday loan. Firstly, debt consolidation loans are typically secured against your property, whereas payday loans are unsecured. This means that any failure to pay the debt consolidation loan in future could put your house at risk, whereas you won’t generally lose your home if you can’t pay back a payday loan.

Secondly, a debt consolidation loan may be taken over a period of several years. This may mean that instead of paying your loan back after a few weeks (which you would through a payday loan) you end up paying your debt back over a longer period of time. This could mean you pay back more interest in total over the term of the loan.

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