4 Loans to Consolidate Payday Loan Debt

If you are currently repaying 2 or more payday loans and finding the repayments difficult to manage, you may be wondering what your debt consolidation options are.

In our guide, we cover providers that could help you consolidate payday loan debt and strategies to pursue if you want to pay down your loan debt without taking out another loan.

4 options to consolidate payday loan debt

What exactly is payday loan consolidation?

Payday loan consolidation involves combining your multiple payday loan debts into 1 loan, often at a lower interest rate. Typically, the lender will pay off your payday lenders, and then you will make regular repayments spread out over a period of time to your new lender.

The interest rate of your debt consolidation loan will depend on personal factors such as your credit score and income.

4 strategies to pay down payday loan debt without taking out another loan

If you don’t qualify for a loan to consolidate your payday loan debt, consider these alternatives:

• Negotiate with your creditors. Payday 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.
• Work 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. If you would like free financial counselling, call Credit Counselling Canada at 1-866-398-5999. It’s open from 8am to 5pm, Monday to Friday.
• Consider a debt relief company. If you’re facing legitimate financial hardship, debt relief companies can help by sitting down with you and going through all your viable options, including credit counselling, debt settlement, consumer proposal and bankruptcy.

Other ways to borrow money

• Line of credit. Contact your bank and see if you can open a line of credit. Your bank can offer lower rates than most alternative lenders.
• Borrow from friends or family. It can be a delicate situation, but you may want to consider turning to friends or family. Be clear that you want a loan and not a gift, and give details on how much you need, how you’ll spend it and when you can reasonably pay it back. Be as detailed as possible to help reassure them that lending to you isn’t a risk.
• Overdraft protection. You can get this from your bank, and it allows you to withdraw more than what you have in your bank account for a fee. This is typically $5 per month or per use plus around 21% interest per year of the overdrawn amount.

Frequently asked questions

• Can I transfer my payday loan debt to a loan that a friend or a relative takes out?

  No, you’re only able to transfer your existing debts to new loans you take out in your own name. If a friend or relative is going to take on your debt, they will need to pay your debt off and take out a new debt under their own name.

• Can I get a debt consolidation loan if I have bad credit?

  Yes, but you likely won’t qualify for a low interest rate. Any score below 660 is going to flag you as having less than good credit. You may want to look into installment loans, which tend to come with more lenient eligibility criteria and offer amounts high enough to consolidate a few short term loans. You will also have a longer period of time to pay off an installment loan and you can generally secure a better interest rate than that of a payday loan.

• How does debt consolidation affect my credit score?

  Taking out a new loan or credit card to use for debt consolidation will temporarily lower your credit score by about 5 points, since lenders will pull a hard credit check in order to decide whether to approve you or not for the loan. However, less debt means better credit. So in the long run, debt consolidation will ultimately help your credit score.