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Thinking about getting a loan to pay off payday loans? Getting a loan to pay off other payday loans is a technique called payday loan consolidation. You consolidate the payday loans you have from different places into a single loan, which can help you get a lower interest rate, helping you to save money over time. This will make it easier to get relief from your debts and greater peace of mind. Relief is just a free consultation away.
To consolidate your debt and make the loan to pay off your debts something worthwhile, you need a certain amount of planning and knowledge of different ways to consolidate such debts.
Make a Balance Transfer / Credit Portability
If you are carrying debt with a high-interest rate, you can save a lot by transferring the balance to a new financial institution with lower rates. To do this, you should do a lot of research with different financial institutions and compare the Total Effective Costs (CET) of all institutions visited. Even if you do not transfer the balance to another institution, you can get offers that will force your current institution to reduce the CET and thus cut your costs.
Take a loan from friends or family
In this type of loan, borrowers get a loan from individual lenders without going through a traditional financial institution. The biggest benefit of loans from friends or family is interest rates, usually null. The closest we get to that in the financial market are loans from credit unions, which has very low-interest rates, but you have to meet the criteria of the cooperative to be a customer of them. It is of the utmost importance that you have the discipline to pay for this type of loan, especially in the case of family/friends, unless you want to lose friends or move family members away because of money.
Understand that debt consolidation is a technique to save you from the financial hole and avoid debts that become snowballs.
Use your emergency fund or retirement fund
This is one last means of debt consolidation feature, but if you are in trouble, you may want to seek your emergency fund or investments with rates of return below the interest you are paying. The advantage of borrowing from your retirement or emergency fund, especially when you are younger, is that you will have plenty of time to replenish what was withdrawn. The downside, of course, is that you may be compromising your retirement savings and your investment portfolio, and especially when you are older, withdrawing money from these investments can be a step further into the bottom of the abyss. Plan well before you make that decision.
Getting a loan to pay off other loans
In that case, you will add up all your debts and get a loan with a lower interest rate to pay off all your current debts. This interest rate should be compared through the CET or Total Effective Cost, which is the real cost (in interest) of the loan. And you also have to research hard until you find a financial institution that will provide the loan limit you need to consolidate your debt.
Is Paying Debt Worth It?
With planning and considering that you have compared all the values and costs of the loans before you leave to consider the idea of consolidating debt, getting a loan to pay off debts is worth it. Let’s look at some examples to help you make the decision.
Example 1: You have decided to pay off your credit card balance to pay off the debt. The installments are, say, $ 200, and you can pay them off with ease. Except that the CET (Total Effective Cost) is 600%, that is, you are paying 600% more annually than the debt that was assumed by you. It is a common mistake to think only of the numbers and forget the percentages. To consolidate this debt, rather than finance the card’s bill, you should take out a personal loan with a CET below 600%. Generally, the CET of personal loans revolve between 60% and 100%, varying up or down according to your client profile, with civil servants being those who pay the lowest rates.
Example 2: You took two personal loans, one with the CET of 60% and the other with the CET of 70%. To organize yourself better, I would like to consolidate debt. What you can do, initially, is to take the data from the two loans and research with different financial institutions for the terms of Credit Portability. Maybe you can transfer the 70% loan to the institution where you got the 60% loan, or you can add the two debts and transfer them to a third institution with a CET of 65% or even less.
As a general rule, we state: It is ALWAYS worth getting a loan to pay off credit card debt and an overdraft. Other consolidations will still require some planning and analysis, but credit cards and overdrafts have higher interest rates than any other source of financial resources.