If you're having trouble paying off payday loans, payday loan consolidation could help you to get a handle on your finances. However, many consumers fail to get out of debt after consolidation because they make some common mistakes that come back to bite them down the road.
The following are four of the most commonly made mistakes seen in payday loan debt consolidation:
Assuming you can consolidate all of your debt
It's not possible to consolidate every type of debt out there. Secured debts like home mortgages often cannot be consolidated. If the majority of your debt is from secured loans, you may have trouble consolidating.
Of course, payday loans are technically unsecured loans. Payday loan debt itself can typically be easily consolidated. However, using a payday loan to consolidate your debt may limit you to borrowing only what you can earn in one paycheck or within a fairly limited period of time.
Neglecting to examine your credit report beforehand
Your credit report can provide you with a lot of important insights into your financial situation that may help you determine whether consolidating is a good idea or not.
If your credit score has taken a beating because you've had a lot of hard inquiries on your credit report, for example, consolidating may cause further damage. Consolidating your debt may require you to undergo an additional hard inquiry that may negatively impact your score.
Borrowing in excess of your debt amount
Those interested in consolidating debt sometimes have borrowed too much in the past. Borrowing excessively can lead to continuing temptations to acquire loan money for more spending and thereby get even further in debt.
Many consumers make the mistake of borrowing more than they need to consolidate and increasing their overall debt. Remember that the important number is not how many different creditors you owe to, but how much you owe overall. If you only owe to one creditor but you owe more money than you owed before, you'll be in worse financial condition after consolidating.
Opting for a loan term that's longer than you need
On a typical loan, the loan term is an important factor in determining how much interest will be paid. It's therefore important to minimize your loan term so that you pay out less in interest.
Determining the loan term that's ideal for you really requires you to do the budgeting and crunch the numbers. You need to find a monthly payment that's financially feasible for you but won't present any hardships that could compromise your income stream. Then, figure out what loan term corresponds to that monthly payment with any consolidation lenders you're working with.
For assistance, talk to a professional like Real PDL Help .