Using Installment Loans to Pay Off Payday Cash Advances

Taking out an installment loan and using the proceeds to pay off payday cash advance debt is a viable strategy because the payments are more affordable.

Lengthening loan terms results in lower monthly payments. Plus, your borrowing costs are less expensive compared to renewing or rolling over a short-term contract and paying another set of fees.

However, not every consumer qualifies for a debt consolidation loan, and settlement companies will not take on new clients unless they have more than $10,000 in unsecured obligations.

Fortunately, the consumers who fall between these two large cracks can follow a simple do-it-yourself payday debt relief approach that keeps them in control of the process.  

Installment versus Payday Loans

Before taking out an installment loan to pay off a payday cash advance, it is essential to learn about the differences between the two contract types. Plus, always bear in mind that you are trading one form of debt for another.

InstallmentPayday
Origination FeesYesYes
Interest ChargesYesNo
Repayment Terms2 – 6 Months2 – 4 Weeks
Rollover OptionNoYes

Affordable Payments

The first advantage of taking out an installment loan to pay off payday cash advances is that you establish periodic payments that are more affordable.

Installment loans have smaller monthly payments, which allow you to retire payday debt over several months instead of two weeks or one month – which proves impossible for many people.

Consider this principal only example of a person with $1,200 in cash advance debt.

  • Payday loan with two-week period: $1,200 biweekly payment once
  • Installment loan with six-month term: $100 monthly payment six times

Lower Costs

The second advantage of using an installment loan to pay off payday cash advances is that your borrowing costs may be lower when compared to rolling the obligation over yet again.

  • Installment loans charge origination fees and periodic interest, which may cost less over the life of the obligation because lenders design the contracts for more prolonged periods: several months.
  • Payday cash advances charge rollover (or renewal) fees which often cost more over the life of the obligation because lenders optimize the contracts for short periods: two to four weeks.

Consider this example of a person with a $1,200 debt who can devote only about $220 per month or $110 biweekly to retire the obligation. As you can see, the rollover (or renewal) fees add up quickly compared to interest accrual, even when as high as 30%.

InstallmentPayday
Origination Fee5%15%
Interest Rate30%0%
Time to Retire6 months5 months
Times Renewed010
Total Costs$167$748

Do it Yourself Payday Loan Consolidation

You may have to default to a do-it-yourself consolidation program for payday cash advances if you cannot entice a third-party company to get involved in the process.

For instance, you may find yourself having to resolve your debt problems alone if you cannot qualify for an installment loan or your debt level is insufficient. Fortunately, a homespun approach can bring relief.

Consolidation Loan

Using an installment loan to pay off multiple payday cash advances is not a do-it-yourself debt consolidation approach – because you need a third party to approve your request.

You are not in control of your destiny when a third-party lender decides whether to approve or decline your application. People who need emergency money to avoid late fees, overdraft charges, or utility reconnect tolls often have inadequate borrowing credentials.

Therefore, consumers with bad credit history sometimes have to fend for themselves because they cannot borrow money at favorable terms.

Debt Settlement

Debt settlement is often a do-it-yourself payday loan consolidation method because the third-party companies that offer this service may not take you on as a client.

Debt relief companies require customers to have at least $10,000 in unsecured debt. Meanwhile, most payday cash advances are relatively small ($1,800 maximum), meaning many people will not reach the $10,000 level. Therefore, expect to plunge ahead alone.

Fortunately, consumers can negotiate payday debt relief by themselves by following the same process that big companies use. You do not need to hire a third party to take any of these steps.

DIY Relief

DIY payday debt relief is often the only alternative for people who do not qualify for an installment loan because of bad credit and cannot hire a debt settlement company because their unsecured balances are too small.

Fortunately, both liabilities become advantages for the do-it-yourself crowd who follow a simple formula.

Bad Credit

Negotiating payday debt forgiveness on your own requires that you demonstrate financial hardship, and having a credit report full of delinquencies makes the case on your behalf.

  1. Stop paying all credit obligations to demonstrate hardship
  2. Consolidate the freed-up funds into an escrow account

Small Balances

Negotiating payday debt relief by yourself happens more quickly when the total amount owed is minimal, and you do not have to set aside funds to pay a third-party company.

  • Wait for the escrow account balance to reach 1/3 of your unsecured debt
  • Present a settlement offer to the payday lenders
    • Immediate payment of 1/3 of the balance
    • Forgiveness of the remaining 2/3 owed