How do payday loan consolidation work?

The revolving cards are those credit cards with which we can postpone the payment of our purchases. The method of return that we can choose will depend on the entity with which we hire our plastic. Some will allow us the free deferred payment at the end of the month, but most will only give us the option to return the money by paying in installments with a monthly fee. It is a hybrid between traditional credit cards and personal loans since they are used like the first and are paid like the latter.

How do revolving cards work?

The revolving cards are within the family of credit cards, and as these allow access to a limited line of credit. With a revolving, we can make purchases on credit up to a certain amount and return it over the next months through different methodologies. There are exactly three ways to make the refund of our purchases:

  • With a fixed monthly fee: we will choose a fixed fee that we will pay over the months until the amortization is equal to the amount plus interest. The quota should be as large as possible so as not to lengthen the debt for too long.
  • With a monthly percentage: here we will select a percentage on the debt, which will be fixed. In this way, each month we would be reimbursed a fixed proportion of the remaining debt, but always with a minimum amount.
  • For months: we will choose a number of months in which we want to pay the entire debt and the amounts to be amortized monthly will be equal to each other.

However, the payment options will always depend on the companies that grant us the revolving cards, so it will be convenient to negotiate with them to contract the method that suits us according to our needs. In addition, it is common for companies that grant revolving cards to introduce some type of advantage to differentiate them from credit cards, such as eliminating the transfer fee between the card account and the bank account.

Risks of revolving cards

The revolving cards have been widely criticized by consumer associations, who claim that it encourages spending and, therefore, can cause a family debt problem. Although it is an interesting theory since we will effectively spend money without really having it if we organize ourselves well we do not have to have credit problems of any kind.

The main risk of revolving cards is that it is a kind of rechargeable loan. For example: if the bank makes us a personal loan of 6,000 euros, we will pay a monthly interest payment until the debt is paid off. However, with a revolving card, each month we will have a renewed credit limit at our disposal. Now, the most positive part is that we will only pay interest for the money we use, unlike personal loans, with which we will have to pay the costs of the entire amount.

It seems great, but keep in mind that (1) the interests of a revolving card are usually higher than those of a personal loan and (2) it is very easy to get into debt because as we said, we do not really use our money. Now, stop borrowing will be relatively simple since we only need to contact our entity and cancel the card.

In general, payday loan debt consolidation companies allow consolidating the debt.

Example of revolving card

Revolving credit cards are becoming more common in the financial market. One of them is the revolving card My Other 123, which Banco Santander will offer us in case we have contracted Account 123. It is a card that has an interest rate identical to that of its credit counterpart (17.51% TAE), called World 123.

With this revolving card, we can only postpone our purchases fractionally, choosing one of the three refund methods explained above. In addition, we will save the usual 3% commission on transfers between the card account and the bank account. The credit card of Santander, however, yes that will charge us for this type of transfers.