Consolidate Payday Loan Debt
Find out what’s involved in consolidating multiple payday loans in our guide.
People with two or more payday loans may find the repayments difficult to manage. One option to overcoming this obstacle is to potentially consolidate the debt into one more manageable loan. There are a number of ways in which this can be done, and a number of alternatives, outlined below.
Are you struggling financially?
If you're struggling financially and would like to speak to someone for free financial advice, information and assistance you can call the Financial Counsellors hotline on 1800 007 007 (open from 9:30am to 4pm, Monday to Friday). If you are suffering financial problems related to the coronavirus pandemic you may be eligible for additional support. Find out more here: https://www.finder.com.au/coronavirus-financial-help
⚠️ Warning about Borrowing
Do you really need a loan today?*
It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.
Check your options before you borrow:
- For information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor
- Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan
- If you are on government benefits, ask if you can receive an advance from Centrelink: Phone: 13 17 94
The Government's MoneySmart website shows you how small amount loans work and suggests other options that may help you.
* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.
Can you use a payday loan to consolidate debts?
When someone applies for a payday loan, the lender needs to take certain steps to determine whether or not they can afford the repayments to ensure that they are in line with ASIC's requirements. The lender needs to determine if the applicant:
- Is a debtor under any other Small Amount Credit Contract (SACC), i.e. if the applicant has any outstanding payday loans.
- Is in default of payment of an amount under any SACCs.
- Has been a debtor under two or more SACCs in the 90 days prior to applying.
- Is using the loan to repay another SACC.
For applicants that the above mentioned applies to, the lender has to take further steps to ensure that they will be able to repay the loan they are applying for. The lender does this by asking further questions about the applicants financial situation. Essentially, if someone is trying to consolidate payday loans with another payday loan, they may have difficulty qualifying.
What are the risks of payday loans?
- Unaffordable repayments. Payday loans are an expensive way to borrow money and should only be used as a last resort. Check the size of each repayment and ensure you will be able to pay it on time. Unaffordable repayments can lead to late fees that will only make things worse.
- High rates and fees. Rates and fees on payday loans are high but there are rules in place so be sure to check your lender is not charging you more than ASIC allows. Also, look at what you would be charged if you are late on a payment or if you default on the loan altogether.
- Unreputable lenders. All Australian lenders should be accredited by ASIC. Check for a credit licence on the ASIC Register and ensure that the lender is easily contactable.
- Impact on credit score. Every loan application shows up on credit reports. While lenders might not consider credit history, applying for lots of loans within a short period can have a negative impact on your credit score in the future.
What does this mean for borrowers?
If someone wants to consolidate payday loans, using another payday loan may not be their best option. Applicants will likely have difficulty being accepted for another payday loan, and the repayments, fees and costs if they are approved will still be high, meaning that they may not be any better off than in their current situation.
Payday loans are usually taken out because the borrower has few other options due to bad credit, is currently on Centrelink payments or is receiving a low income. If someone falls into the third category, using a high-cost payday loan to consolidate outstanding high-cost payday loans may not be the solution. However, there are other options available.
What options do you have for payday loan consolidation?
The following options can be considered for someone who wants to consolidate their payday loan debts:
- Unsecured personal loan.
Rates vary for unsecured personal loans, especially for bad credit borrowers. To find out more, prospective applicants can read our guide on bad credit debt consolidation.
- Credit card balance transfer.
There are a few card providers who will let customers transfer their personal loan debt to a credit card, letting them have up to 24 months of 0% p.a. interest payments. The one drawback is they'll need good credit to be approved. Customers can read more about the requirements and compare their options on this page.
Not eligible for payday loan consolidation? Strategies to pay down debt
If someone applies for loans and has their application rejected, or read through the eligibility criteria and couldn't find a loan that they would be eligible for, there are other options for minimising their debt. People struggling with their current debt can can:
- Get in touch with their lenders. Every payday lender has a financial hardship department that may be able to offer customers assistance or help them to establish a repayment plan. The earlier someone gets in touch with their current lender(s), the easier it will be for them.
- Draw up a budget. This could be an opportunity for someone to sit down and work out all of their incomings and outgoings and see where they can cut back. There is online budgeting software they can also consider using to help them work out their finances.
- Call the free financial counselling hotline. If someone is really struggling, there is a free financial counselling service that they can call for personal advice. They can get in touch with the service on 1800 007 007.
There are also a number of alternative options to payday loans that customers may qualify for if they meet certain criteria, and this may help to get some people out of the debt spiral. Customers who are really struggling under a large quantity of debt can also find out the consequences of bankruptcy, and whether there are any alternatives for their situation.
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