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Debt Consolidation:
In debt
consolidation, a consumer takes out a new loan and uses the
proceeds to pay off existing debts. It may make sense if the new
payment is lower than your existing payments combined, or if the
debt will be paid off significantly quicker. However, anyone
using this option must have the self-discipline to avoid taking
out new payday loans and finding themselves in trouble again.
There are two basic types of debt consolidation.
If you own a home, you may be able to lower your cost of credit
by consolidating your debt through a second mortgage or a home
equity line of credit. If you can't make the payments — or if
your payments are late — you could lose your home.
Alternatively you
can take a credit card cash advance or go to one of the many
finance companies and banks that offer unsecured lines of
credit. These may enable you to consolidate payday loan debt,
assuming your credit limit is high enough. However, you
generally must have excellent credit and a high income to
qualify. Moreover, while the interest charged is much lower
than that of a payday loan, the payment periods are very long if
you make only the minimum payments. In some cases, it can take
decades to bring the balances to zero.
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