Personal loans offer a lot of positives to those looking to take one out. They help individuals consolidate debt, and they are versatile.
The hot-button issue for many when it comes to personal loans is the idea of debt consolidation. Oftentimes, high amounts of debt across a few lines of credit are handled by taking out a personal loan. At face value, this may not make a lot of sense. How will taking out more money help you to begin to chip away at your overall debt? However, by taking out a personal loan, individuals can actually move all of their high-interest credit card debt to one pile. Suddenly, instead of four credit card payments to make per cycle, they will only have one monthly payment to worry about. This makes budgeting strategy easier, and it lowers the overall amount of interest paid—this means that you'll likely save money in the long run if you pay off your credit card debt immediately with a personal loan.
The Benefits of Personal Loans
A significant advantage of this for consumers is the flexibility in how much to borrow and over what period. Typical credit card loans are often too rigid and high-interest. The ability to only take on what you can afford means you can manage a lot more precisely where your cash flow is going. Coupled with often much lower interest rates, the actual cost of borrowing versus other lending methods, like the evil [ slight bias ] but very well-marketed credit cards, actually puts the balance of power back on the side of customers. Pay down higher interest rate credit cards, and take out more affordable personal pay loans, then manage and forecast your repayment plan is a significant step on the way to reaching better financial health.
Personal Loans for Debt Consolidation
Debt consolidation definitely can help lots of people. It’s a financial strategy encompassing a few things. First, it rolls multiple debts into just one. So, instead of three, four, or even more credit card bills, you only have one payment to remember. You are much less likely to make a late payment with one bill than with several. Plus, there are types of debt consolidation loans which can give you a lower interest rate.
There are lots of ways to consolidate debt. You can even use zero percent interest credit cards to do it. But, this post is about personal loans for debt consolidation. Because, those, as mentioned earlier, also have fixed rates and they give you an exact date as to when your loan will be paid off. (Credit cards do not.)
So, here’s an example. Let’s say you own an average of $15,000 on your credit card. You are having a lot of trouble paying that off. It’s possibly at a really high interest rate of over 15 percent.
What you can do is take out a personal loan for that $15,000 and pay off the credit card. The personal loan probably is a lower interest rate than what you had on your credit card. You can use personal loans in order to pay off other forms of debt as well. Many people use this type of strategy to finally get themselves out of credit card debt.
Understanding Personal Loans
A personal loan is a type of unsecured loan you can use for just about any purpose: debt consolidation, a new car, a major purchase, a wedding, a vacation, unexpected expenses—you name it.
Personal loans can be a versatile tool to help manage debts and assist with larger, unexpected, and variable expenses. They allow borrowers to consolidate higher-interest debts into a single personal loan payment at what’s typically a lower rate, which could save hundreds to thousands of dollars over time as well as manage payments across various debts. It may also help improve credit scores over time through regular payments.
Before you sign up for a personal loan, ask yourself: what’s your situation? What’s your income and what are your debts? Have you explored smaller personal loans and larger personal loans? Understand where you are in the debt resolution or debt management process. Consider the reality of your education, expenses, and existing debts. Consider the extent of your fiscal goals for the future. Will the extent of the personal loan support the resolution of your present payments or plans to enhance your short-term and long-term financial stability, wealth creation strategy, and general financial planning solutions?