Payday loans and high-interest installment loans are among the most expensive ways to borrow. Once you’re in a cycle of them, it’s hard to get out. If you own a home with equity, consolidation can break the cycle.
Why they’re so costly
Payday loans charge fees that work out to extremely high annual costs, and high-interest installment loans can carry rates far above credit cards. Rolling one loan into the next makes it worse.
How consolidation helps
Paying them off with home equity replaces very expensive debt with mortgage-rate debt, and stops the repeated borrowing. Lenders may see payday loans as a sign of financial stress, so be ready to explain what changed. See consolidating with late payments.
The most important part
Payday loans usually cover a gap between income and expenses. If that gap is still there, the cycle will start again. Build a budget and a small emergency fund. See building a budget and emergency funds.
Other help
Non-profit credit counselling agencies can help with budgeting and repayment plans. See consolidation vs credit counselling vs a proposal.
Know your rights
Alberta regulates payday lending, including limits on borrowing costs. Service Alberta can answer questions about payday lenders’ obligations.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.