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How do I consolidate my payday loans?

You can consolidate your payday loans by combining them into a new one. To do this you need to take out a new line of credit and use it to repay your payday loans – you’ll then pay off the new loan in single monthly repayments.

6 min read
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How to consolidate payday loans and get out of debt  

If you’re wondering how to pay off multiple payday loans, you might want to consider a debt consolidation loan.

Bear in mind you’ll still need to pay off the full amount of money you owe, it will just be in one monthly repayment instead of your original payday loans. 

Follow the three steps below to consolidate your payday loans and get out of debt.

1. Shop around

Use comparison websites to shop around for the best deals. Make sure you also check individual providers’ websites because not all debt consolidation loans are listed on comparison platforms.

2. Use eligibility checkers

Once you’ve found some deals that you’re interested in use eligibility checkers to see whether you’re likely to be accepted. Every credit application you make leaves a footprint on your credit history and multiple applications can damage your credit score. Eligibility checkers soft search your credit history – they don’t leave a footprint and therefore don’t damage your credit score.

Only people with high credit scores are normally accepted for the best deals so it’s important that you use an eligibility checker before making an application. This also reduces the risk of rejection.

Is consolidating payday loans a good idea? 

There are several reasons why consolidating your payday loans might make financial sense:

1. If it’s easier to manage one provider

You’ll have all of your debts in one place so you might find it much easier to manage then when you had lots of different providers to deal with.

2. If you can’t afford your payday loan repayments

Payday loans are normally due on the day you get paid, meaning that you’ll have to pay back multiple loans in one go. If you can’t afford this, payday loan companies often give you the option to ‘roll over’ your payment at a very high interest rate. A better alternative might be to consolidate your debt into a loan with potentially lower monthly repayments.

3. If you find a lower interest rate elsewhere

Payday loans are notorious for having high interest rates. If you find a debt consolidation option with a lower interest rate than your payday loans, it might be a good idea to take it.

4. If you pay back less overall by consolidating

The total amount you’ll pay back with your payday loan (including interest and fees) may be higher than a debt consolidation loan. Work out the total amount you’d pay back on each debt consolidation option to see whether you’d pay more on your payday loans or on a new loan.

What factors do I need to consider? 

There are also several things you need to be cautious about when consolidating your debt:

1. Can you afford to consolidate your debt?

Not meeting the repayments on your debt consolidation loan means you’ll damage your credit score, be charged late fees and potentially end up sliding further into debt. Ensure the repayments are realistic for you before you apply. Otherwise, your credit score and creditworthiness in the eyes of lenders will be affected.

2. Does the debt consolidation loan cover all your debt in full?

The point of debt consolidation is to combine your debts into one – so you’ll need the new loan to cover the total amount you owe on all of your payday loans, including interest and fees. If it doesn’t, you’ll just increase rather than consolidate your debt.

3. What interest rate are you eligible for?

Having several payday loans may have damaged your credit score. Unfortunately, people with a low credit score can’t normally access the best interest rates. This means you could end up paying more interest on a debt consolidation loan than across the payday loans you already have.

4. Will you end up paying more overall?

Depending on the interest rate and length of the loan term you’re offered, you could potentially end up paying more overall by consolidating your debt. Before applying for credit, you should work out the total costs of your current payday loans and the debt consolidation loan you want to take out, including interest and fees. You’ll be able to see which options means you’ll pay back less in total.

How else can I get rid of payday loan debt? 

If debt consolidation isn’t right for you, there are other ways you can deal with your payday loan debt.

Ask your lender to restructure your repayments

Speak to your payday lender and ask them to restructure your repayments. It’s possible they’ll let you pay off your loan over a period of time. Be aware that there may be additional fees for doing this and that the longer you take to pay off your debt, the more interest you’ll pay in total. Plus, paying less than the contractual amount will damage your credit score.

Also bear in mind, that your lender may not agree to put you on a reduced payment plan.

Seek debt advice

If you’re struggling to repay your payday loans you can speak to Citizen’s Advice who will point you in the right direction. You can also contact debt charities like StepChange for free confidential legal advice.

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