Many of you may be submerged with heavy debt and a considerable amount may be from your credit card that charges a very high rate of interest. Can you get relief from your debt by availing a personal loan?
Let us discuss personal loans and whether it will be a good idea to avail1 such loans for clearing your outstanding debts.
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Whether a personal loan will be a good idea to consolidate your debt?
You can use your personal loan for a variety of purposes, including debt consolidation. Consolidating your obligations with a certain personal loan may help you save time and also your money in the long run if you have many debts. Consolidating debt with personal loans is a smart strategy if:
- You have got several debts with very high amounts with high interest.
- Your credit score is in between good and excellent.
- You can obtain a new loan where terms are much more favorable to you
- Your interest rate for the consolidation loan will be much lower than your present debt
- You will be in a position to repay your consolidation loan
- Your spending will be totally under control so that you may not fall into the debt trap again.
Benefits and drawbacks of using personal loans for paying off debt
Taking out a loan for paying off your credit cards or all other forms of debts has both pros and cons. Let us see a few of the benefits as well as drawbacks:
- Lower interest rates: Most personal loans may charge a lower rate of interest as compared to credit card interest rates, which are usually very high.
- Consolidating payments: Rather than tracking your multiple payments, now you can just consolidate your entire debts into a single payment with your personal loan.
- Versatility: You can obtain a loan for paying off the debt of all kinds. Compared to any student, auto, or mortgage loan, your personal loan will be much more versatile too.
- Predictable: Your personal loan will consist of your regular payments that will attract a fixed rate of interest for a certain specific period. With proper budgeting and planning, you can handle your personal loan much more easily.
- Does not totally eliminate your debt: By using any personal loan for consolidating your debts will not really eliminate your debts. It will simply be repackaged into some other loan. Therefore, still you must exercise your self-discipline for avoiding incurring additional debt.
- Potentially higher payments: Although, you may get a lower rate of interest with your personal loan, however, your monthly payments possibly may go up than the minimum amount of payments that you used to pay for credit card payments.
All these higher payments may always cut into the monthly cash flow.
- Early repayment fee: Also, this is called a certain prepayment penalty. In case you decide to clear your entire loan early, then you have to pay a certain amount of fee.