How to consolidate short term loan debt
Thinking of taking out another loan to cover the repayments of other short term loans? Find out how to consolidate your debt and save on fees.
If you are currently repaying two or more short term loans and finding the repayments difficult to manage, you may be wondering what your debt consolidation options are.
In our guide, we cover ways to consolidate your current short term loan debt and three strategies to pursue if you want to pay down your loan debt without taking out another loan.
What exactly is short term loan consolidation?
Loan consolidation entails combining multiple debts into one, often at a lower interest rate. If you have two or more short term loans to pay off, you can consolidate these loans into one single debt. This means you will then have just one company you have to make one monthly repayment to, which will help make paying back your short term loans less expensive and confusing by implementing a more streamlined process.
Can I use a short term loan to consolidate debts?
Do you have multiple short term loans and want to pay them back as one single loan? Using another short term loan to pay them back may not be your best option, unless you can afford it. So yes, you can use a short term loan to consolidate your debt if you’re sure you won’t fall behind with repayments.
Short term loans are usually taken out because the borrower has few other options due to bad credit or is receiving a low income. Using a high-cost short term loan to consolidate outstanding high-cost short term loans may not be the solution for you. There are other options out there instead of risking your credit rating once again by taking out another short term loan.
How else can I consolidate payday loan debt?
- A bad credit personal loan. This is a viable option if you want to consolidate your short term loan debts. Interest rates vary for unsecured personal loans, especially for bad credit borrowers, however you will likely be able to find a loan that’s large enough to pay off your debt and has a reasonable interest rate that’s more affordable than your current repayments.
- An installment loan. Although you will likely be offered a smaller amount of money than a personal loan, you can usually find cheaper interest rates and longer repayment terms with installment loans than you can with payday loans. If you can find a lender who is willing to offer you enough money to cover your short term loans, you could potentially consolidate your debt into one installment loan.
- Borrow from a friend or family member. If you have a friend or relative who is willing to lend you money for a couple of months, this could be another option. Although it might take a hit to your pride to ask, loved ones tend to offer money to friends or family with no added interest. You could use this money to pay off your payday loans. Then, treat your loved one like a lender and pay them back with regular on-time payments as agreed.
Three strategies to pay down short term loan debt without taking out another loan
If you apply for loans and have your application rejected, or read through the eligibility criteria and can’t find a loan you’re eligible for, it’s time to find a strategy to pay down the loans that you have.
- Get in touch with your lenders. Most short term lenders have a collections department that may be able to offer you assistance or help you establish a repayment plan. The earlier you get in touch with your lender, the easier it’ll likely be for you to get an extended repayment plan. Some lenders will be willing to work with you through your difficult financial times, so don’t be afraid to ask.
- Draw up a budget. Sit down and work out all of your income and expenses and see where you can cut back. Consider a free online budgeting software or a smartphone app to help you keep track of your finances. Any monthly savings you can scrape together can go toward your loan repayments.
- Consider working with a credit counsellor. Reputable credit counsellors can recommend ways to work out a budget and often offer free materials and workshops to help you manage your debt for the long-term. You can find the root of your financial problem and work on that as opposed to barely keeping your head above water with your finances.
If you’re stuck in a short term loan debt cycle, you have options to get out of debt. Whether it’s consolidating your short term loans or finding a strategy to repay your outstanding debts, start by comparing your options and finding the right method for you.
Payday loans are available in all provinces and territories across Canada. You should be aware that payday loans are regulated by individual provinces, meaning costs and fees can vary. Ensure that any lender you choose abides by the laws of the place you live.
At the time of writing in July 2018, the Yukon, Nunavut and the Northwest Territories do not have legislation regulating payday loans.