Using personal loans is an option that you can consider to consolidate credit card debt. A recent survey revealed that 6 out of 10 debt-ridden consumers consider debt relief as their primary financial concern. Among the other financial concerns of the survey respondents include paying off medical bills, mortgage, car loans, and also saving enough money for emergencies. If you are feeling stressed about your financial situation, do not worry. You are not alone.
As intimidating as it may be, there is a way out of debt. It will be hard – there is no doubt about that. But making the decision to make it your financial priority is the first step towards debt freedom. You need to be dedicated to your debt solution because there will be a lot of temptations that will keep you from succeeding. You will be making a lot of sacrifices too. If you are not dedicated and determined to complete the program, you might end up failing to reach debt freedom.
There is no shortage of options when it comes to getting out of debt. The challenge is finding the right option that fits your debt and financial situation perfectly. If you choose the right one, it will be easier for you to get out of debt.
This is why you need to get to know personal loans thoroughly before you choose it as your debt solution.
Why use personal loans in credit card debt consolidation
A personal loan is a type of non-recurring debt that people use for a lot of things. If you are planning on using it to consolidate debts, there are a couple of positive outcomes that you can expect from it.
Lower interest rate
This type of debt is usually offered with a low-interest rate. If you have a good credit score, you can get the lowest interest on the amount that you will borrow. According to one report, of all the people borrowing personal loans, 15% of them used it to consolidate debt. The primary reason is to lower the interest rate. Since credit card debts have the highest interest among all types of debt, using a personal loan to consolidate it is one of the most effective ways to save money.
Definite payment schedule
A personal loan comes with a definite payment schedule – whether it is 3, 5 or even 10 years. Credit cards do not have this. As long as you pay the minimum required amount each month, you can get away with not paying the rest of the balance. Of course, if you stick to the minimum amount, it will take you forever to completely pay it off. This will make it harder for you to make future plans. If you consolidate it using personal loans, you have a more definite timeframe. You can determine if you will be out of debt in a couple of years. That will make it easier for you to make plans for the future – specifically when it comes to reaching new financial goals.
Improved repayment plan
Finally, personal loans can help you improve the repayment plan. If you want to get out of debt faster, you can choose a personal loan that has a shorter repayment period. Just make sure that you can afford the higher monthly payments. But if you want to ease the strain that debt payments put on your budget, then you can get a loan with a longer repayment plan. This will not require a high monthly contribution from you.
Reminders when using personal loans in debt consolidation
If you find personal loans to be quite beneficial, you need to know how to use it properly. This will really maximize the benefits that you will get out of it. Here are some of the tips that will help you guarantee the success of this credit card consolidation effort.
Know your other options
First of all, know about all the other options. There are several ways to consolidate credit card debts apart from personal loans. You have debt management, debt consolidation loans, balance transfer, etc. These are all effective options to consolidate but only for those who have the right financial circumstances. For instance, if you have a low credit score, you might want to avoid borrowing loans and just stick to debt management. But if your credit score is not a problem, then go ahead and borrow a loan. When you know all your options, it is easier to decide if personal loans are really the perfect option for you.
If you are serious about using a personal loan, that is okay. However, you still have to be cautious about borrowing. Start by comparing lenders. Do not just go for the first lender that you come across. Look at 3 to 5 options before you make a decision. This way, you can compare which ones offer the best deal and the right terms. Do not just go for the one that will help you save the most. Focus on the value.
Scrutinize the rates and fees
When you have found the right lender, scrutinize the rate and fees. There are a couple of questions that you need to ask before choosing the best lender for your consolidation program. If there are things that you do not understand about the rates and fees, do not hesitate to ask. Not only that, learn to negotiate. If you want to waive fees or lower the interest rates, inform the lender and find a more favorable agreement.
Borrow only what you need
Finally, you also have to make sure that you will only borrow what you need. Some people end up compromising the debt freedom from the very start because they borrowed more than what they really need. If they qualified for $10,000 worth of personal loans, they borrowed the whole thing even if they only needed $7,000. Avoid doing this. Borrow only what is necessary so you can keep your balance as low as possible.