Debt Consolidation
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Payday Loan Consolidation: Getting Out of Payday Loan Debt

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Getting out of payday loan debt is difficult since this type of financing comes with high interest rates and short repayment terms. A majority of payday loan borrowers end up rolling over existing payday loans into new payday loans, incurring more fees and becoming trapped in a cycle of debt.

Payday loan consolidation means borrowing money to pay off multiple payday loans, hopefully breaking the cycle of re-borrowing high-interest debt. You can seek payday loan relief with a personal loan or payday alternative loan, for example. Compare your options below and see the alternatives to payday loan debt consolidation.

How payday loan consolidation works

Payday loans are targeted toward consumers who need fast cash with no credit check. Getting out of a payday loan can be difficult because they come with triple-digit annual percentage rates (APRs) and short repayment terms.

When payday loan borrowers can’t repay the loan, they may open a new payday loan to repay the original one (sometimes referred to as “rolling over” the loan), incurring more fees and increasing the cost of borrowing. Over time, payday loan debt becomes more expensive and difficult to repay.

Payday loan consolidation helps borrowers combine multiple high-interest payday loans into another type of loan, like a personal loan or payday alternative loan.

Pros and cons of consolidating payday loans

If you need help paying off payday loans, debt consolidation can be a practical option. Consider the benefits:

  • Lower APRs and fees. Payday loans carry high APRs (that equate to around 400% for a typical two-week payday loan), so consolidating into another form of financing can save you money. Origination fees on personal loans are also significantly lower than payday loan fees.
  • Longer repayment terms and predictable monthly payments. Short-term payday loans must be repaid in two weeks, but personal loans and payday alternative loans, for example, give borrowers months or years to repay the debt, typically in equal-sized installments. That gives borrowers more certainty in their budget.
  • Avoiding delinquency and wage garnishment. If you don’t repay a payday loan, the lender could take you to court, which may result in wage garnishment. Consolidating payday loans can also keep collections agents from calling your phone.
  • Putting an end date on your debt: Unlike with payday loans or a line of credit, there are no rollovers, meaning that you can zero your balance once you make your final monthly installment payment. Having that end in sight can also keep you motivated to end your debt on or ahead of schedule.

There are also a few drawbacks to consolidating payday loan debt:

  • Tougher eligibility criteria: Consolidating a payday loan with a debt at a lower APR is a real positive, but qualifying for low rates is easier said than done. You typically need at least fair credit to be eligible, while good or excellent credit is needed to snare interest rates on the lower end of the spectrum. Your debt-to-income (DTI) ratio could also make or break your payday loan consolidation application.
  • Minimum borrowing amounts. Some financing options, such as a personal loan for debt consolidation, may have minimum borrowing amounts that are higher than the amount needed to pay off your payday loan debt.
  • Repaying debt with more debt. You’ll generally want to avoid taking out debt to pay for debt, unless you can get much better terms on the new debt by doing so.

Keep in mind that payday loan consolidation may not be the best way to get out of payday loan debt. See your options for consolidating payday loan debt below, but also consider the alternatives.

Options for payday loan debt consolidation

There are several ways you can consolidate your debt, including payday alternative loans, personal loans and balance-transfer credit cards. Compare your options using the table below:

Payday alternative loan (PAL)
  • Choose from two kinds of small-dollar loans (PALs I and PALs II)
  • PALs I: $200 to $1,000 loan that is repaid in 1 to 6 months
  • PALs II: Up to $2,000 that is repaid within 1 year
  • APRs are capped at 28% and application fees are capped at $20
  • Only offered through federal credit unions
  • PALs I require that credit union members are established for 1 month before taking out a loan (PALs II do not follow this rule)
Personal loan
  • Fixed terms and APR, meaning your monthly payment will stay consistent
  • Funding is fast, often within 1 week
  • No collateral required, typically, although secured personal loans may be available
  • APRs can be high for low-credit borrowers
  • Personal loans typically start at $1,000
  • Potential origination fee equal to 1% to 8% of the borrowed amount
0% APR credit card offer
  • Good-credit borrowers may be able to secure an introductory 0% APR offer for a period of up to 20 months, typically
  • No collateral required
  • You’ll need good credit to be approved
  • If you can’t pay the balance by the time the 0% APR offer is up, you’ll owe interest on the remaining amount

How to seek payday loan relief without consolidating debt

Payday loan debt consolidation isn’t the right — or even possible — strategy for all borrowers. Fortunately, it’s possible to seek payday loan relief without taking on new debt. Here are a few strategies to consider:

Consult a nonprofit credit counselor about debt management

If you need payday loan help but don’t qualify for any of the payday loan debt consolidation methods above, you have options. Nonprofit credit counselors typically offer free debt advice and educational materials as well as free or low-cost debt management services, such as for your payday loan debt. A credit counselor can help you weigh your options, including debt management plans to repay the debt over a longer period of time.

To find a government-approved credit counseling agency:

Ask your lender about an extended payment plan

You could also ask your lender about payday loan relief. Some lenders may offer a no-cost extended payment plan to borrowers who are experiencing financial hardship.

The terms of the extension depend on the state in which you took out the loan, so get in touch with your payday lender for more information. You can apply for a payday loan extension once annually.

Borrow from friends or family

Payday loans typically are small amounts of just a few hundred dollars. If you’re able to, it might be a better solution to borrow the amount from friends or family than to roll over the payday loan or to take out a debt consolidation loan that has a higher minimum.

When you borrow money from loved ones, keep in mind that while there may be no concrete cost of borrowing or contracts, you run the risk of ruining the relationship if you can’t repay. Financial transactions between friends or family are built on trust, so make sure you have a tangible plan for repaying the money you borrowed.

  • No- or low-cost assistance from certified or accredited experts
  • Potential to your extend repayment term without penalty
  • Manage your debt without opening a new account
  • Not possible for all borrowers in all situations
  • Beware of debt relief scams promising payday loan relief in exchange for upfront fees


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