Advantage of Using a Personal Loan to Pay Down Debt
Written by: Kristy Welsh
Last Updated: August 1, 2017
When you are knee deep in debt, you are always looking for ways to pay off or pay down those high interest credit cards or high interest loans. If you have a credit card or loan that has an interest rate of 25 percent or more, it seems that the balance due never seems to go down — no matter how much you pay each month. But what if you wanted to make a large purchase or go on a vacation, where will you get the money to pay for such an expense? Not on that maxed out credit card — that's for sure! How about getting a personal loan or a line of credit. Here are some advantages to using this type of financial tool.
Personal Loans Are Flexible
Personal loans are usually multipurpose, unlike a car, home or student loan which can only be used for one purpose. You can use a personal loan for travel, medical expenses, home remodeling, or financing your wedding. There may be some lending institutions which require you to specify what you are using the money for so it is important to read the information very carefully.
Fast Money with a Personal Loan
Depending on where you go to apply for your personal loan, sometimes you can get the money you need the same day you fill out your application. Because getting a personal loan can usually happen pretty quickly, the faster you can make payments on debts you might be late in paying.
Competitive Rates and Low Monthly Payments
Different lenders offer different rates for personal loans, so shop around to get the best deal. If you have a bank with which you already have a relationship, go to them first as they may offer you the best deal. Credit unions or local banks are usually the best place to get this type of loan. Along with a good rate, some banks may offer variable or fixed rate so make sure the rate you choose does not leave you with payments higher than you can afford.
Another advantage of using a personal loan to pay off other debts is the lower monthly payment. Not only are you paying off a high interest debt, but your monthly payment will be lower which frees up some cash for you each month. Instead of being strapped each month to make sure you can make ends meet, you will have a little bit of extra money left over which can be put into an investment account.
Little to No Collateral Needed For a Personal Loan
A personal loan does not usually require as much documentation, like a mortgage or a car loan, which makes the processing time of this loan much quicker. You also don't typically need any collateral or security to put against the loan.
We think this goes without saying, but we will say it anyway, anytime you are borrowing money it is important to make sure you are making a good financial decision based on your current situation and goals. It is also important to make sure your monthly payment will be affordable and you don't take on more debt than you need. While taking on a personal loan can help you build your overall wealth, it is a good idea to weigh in whether or not you will be getting your money's worth and you aren't paying too much in interest.