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Smart Ways to Use a Personal Loan

Debt is a scary thing and most of the time, we do not recommend having too much, but there are situations in which debt is acceptable. Strategic debt, that is when you thought and decided that you would have a debt that would improve your financial situation in the long run. You can get into debt in a variety of ways, but it’s important that you choose the one that’s right for you. Most people would choose a credit card because it is probably the easiest way to get it, but it is also the easiest way to abuse and abuse, which could make your situation worse. Taking a small Personal Loan from a private lender is as easy as applying for a credit card, but you can use it to improve your current financial situation instead of damaging it.

Here are 3 smart ways to use a personal loan to save money, pay off debt and build a better financial future.

  1. SAVE MONEY WITH BETTER INTEREST RATES

If you currently have a high interest loan or a credit card and are having trouble making payments or you think you will never be able to collect and repay your debt, you should consider taking out a personal loan. If you can apply for a personal loan with a much lower interest rate than a credit card or loan, you’ll save more than you think.

Ask for a Personal Loan and see the interest rate they offer you. If the current rate is lower than your current rate, take the loan and pay off the credit card or high interest loan. You will save hundreds of dollars a year, which you can use to pay off your personal loan.

  1. REDUCE CREDIT CARD DEBT

Here is the situation: you charge something quite expensive on your credit card, but tell yourself that you will pay for it as soon as you receive your next paycheck, but that this of course never happens and you perform always the minimum payments months later. This happens all the time, credit cards make spending and forgetting easier and you suddenly find yourself caught up in the cycle of minimum payments. The debt can last for years this way and usually the end is impossible to see.

Personal loans are generally installment loans; this means that they have a series of payments that must be made for a specified period of time. So, you will take out a Personal Loan to cover your credit card debt (and you will stop using your credit card, of course), and then start paying the installments and knowing at any time that your debt is over.

  1. IMPROVE YOUR CREDIT HISTORY

A small Personal Loan can be used strategically to improve your credit history and create a better credit score, so you can apply for more credit or loans when you need it.

This will work in the first place by improving the variety of credit that appears on your credit report. This is important because most credit score assessments take into account the different types of credit you have. If so far, the only type of credit you have comes from credit cards, your credit score will reflect it. There must be a mix of revolving accounts (credit cards) and term accounts (personal loans, mortgages, etc.), as this will significantly improve your credit score and show future lenders that you are able to manage your debts and credits in a responsible way. Subscribing to a personal loan will add an installment account to your credit report and help you add variety to your credit score.

The second way a Personal Loan can help improve your credit history is to reduce the debt utilization ratio. The reason is that the problem is due to the fact that the calculation of your credit score takes into account the available credit ratio of your account on the balance of your accounts. If you have a credit card that permanently carries a balance of more than 25% of available credit, your credit score is permanently compromised. You can use a personal loan to pay off at least a portion of your credit card debt, which should, hopefully, improve your credit score because your “debt utilization” ratio is no longer as high. Learn more about credit scores here.

Do not let the debt scare you. Review your debts, your credit card balance and your interest rates and you should be able to tell immediately if a Personal Loan can help you improve your financial future.

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