How Payday Loan Consolidation Can Help You

Payday loan consolidation is an invaluable way for homeowners to reduce interest payments and improve affordability. Whilst the rate of APR on same day Payday loans can be upwards of 400% per annum, Home Equity Lines of Credit (HELOC) loans are widely available at just 9% APR.

Why Are Same Day Payday Loans Expensive?

The main reason for this huge disparity in charges is the fact that Payday lenders will lend to anyone who has a full-time job. It is argued that the usury rate of interest is there to compensate the lender due to the higher risk of default. After all, they don't perform a credit-check and have no security what-so-ever.

The Effects of Payday Loan Consolidation

Whilst paying $20-25 of interest each month on every $100 borrowed may be affordable to begin with, the amount owed can quickly spiral out of control if repayment is not made. A compounded usury interest rate will make paying off debt virtually impossible as a growing percentage of your disposable income will be used to service debt repayments.

Instead of trying to pay back $2,000 in a single month, repayment can be spread over a longer period of time. Many HELOC loans are available on an interest-only basis over the full term of your mortgage. Whilst it is true that more interest is paid the longer a debt is allowed to continue, Payday loan consolidation is one of those rare exceptions where this rule does not apply.

It is possible to pay off debt at an accelerated rate due to a higher disposable income. You are also able to use the funds again in the future, rather than take out a further same day Payday loan, should a further emergency arise.

Unsecured Vs Secured Debt

Turning unsecured into secured debt is not usually a sensible option. This is because it gives the creditor the option of foreclosing on the property should the borrower default on the agreement. However, this is extremely unlikely to happen in order to recover a small sum of money. The extended term of the loan means that repayments tend to be very modest. It may also be possible to get a repayment holiday.

If Payday loan consolidation is not for you, a debt settlement program or Debt Management Plan may provide a viable alternative. Always talk to a qualified debt counselor before proceeding with any debt relief solution.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.