“A personal loan for debt consolidation may lower your interest rate and simplify your monthly bills. But that will not solve the bigger problems at all”.
In the last decade, personal loans have become much more common, whether it’s small projects, big but not huge purchases, and debt consolidation.
Taking a personal loan to pay high interest rate credit card debt may seem like a simple and easy solution, but it should not be done lightly. The repayment of the debt is as much a change of mentality as a passage of the credit cards to a bank loan.
If you are unprepared, taking out a personal loan can pave the way for more expenses and debt. Here’s what you should consider before you start:
YOU HAVE A PLAN TO PAY YOUR DEBT
Before making a decision, you must have a plan to pay off your debt. If you simply combine all your credit card balances into one big personal loan without having any idea how you are going to pay off that debt over the next five years, you might as well not care.
Is the new monthly payment feasible? Or will you have trouble paying for it and will you end up relying on your new unpaid credit cards? It’s beneficial to be honest with yourself about your willpower and financial ability: lying to yourself about what you can and cannot do can only lead to disappointment and indebtedness. increased.
YOUR DEBT IS IMPORTANT BUT NOT OUT OF CONTROL
The personal loan for debt consolidation is ideal for moderate consumer debt.
Can you repay your debt over the next five years? If this is the case, consolidation via a personal loan can make sense. If you plan to repay your debt within six months to a year, a personal loan is probably not worth it. The small amount you saved in interest is not worth it.
On the other hand, if you do not know how you will repay your debt, let alone over the next five years, a personal loan will probably not be enough. You will probably need to consult a credit counselor, a professional who will tidy up your business.
YOUR EXPENSES ARE UNDER CONTROL
Consolidating your credit card debt with a personal loan does not make it magically disappear – it simply moves it. Debt, after all, is the symptom; to live beyond your means is the disease. If you know that the only reason you do not always charge for your optimized credit cards is that they are saturated to the maximum, a personal loan can be the ultimate catalyst: you get out of your current situation without doing anything. stop your excessive expenses.
If you have had a moment to go to Jesus about your expenses, a personal loan can be a useful way to simplify and streamline the repayment of your debt. But if it’s not the case, it’s a new way to get into more debt.
YOUR CREDIT SCORE IS HIGH ENOUGH TO ACCUMULATE LOW RATES
If your debt has reached a certain point on your credit score, personal loans made available to you may or may not be cheaper than continuing to pay off your credit cards. The FICO score requirements for getting the best rates from personal loan lenders can be steep. You may need a credit score greater than 760 to start knowing the lowest single-digit interest rates.
If your balances are high but you always pay the minimum to a minimum, your credit score is probably high enough to get a lower rate than your credit cards. But if you regularly miss payments, your personal loan is probably nothing more than a lateral move of your monthly interest payments. Fortunately, some personal lenders like Credible allow you to check your interest rate before submitting your application and without hurting your credit. Credible rates start at 4.99% APR.
Even if you cannot beat your current interest rate by consolidating your debts with a personal loan, there may be an advantage: with a personal loan, you will have to make a fixed monthly payment that will repay your loan at the end. term (usually three or five years). This makes it difficult for you to get stuck in the trap of making minimum payments all the time.