Are you looking at your credit card debt and thinking if there could be another way to help you pay it off sooner? If you have a good credit score, there may be a solution. It’s known as a personal loan. It may help you with your credit card debt since it can consolidate all of it into one.
What is a personal loan?
A personal loan is money you’re borrowing from a bank, credit union, or online lender with fixed monthly payments that you can use for pretty much anything you need. Personal loans also typically last between 2-5 years. Most are unsecured loans meaning that you’re not putting any of your assets on the line.
There are also secured personal loans, which you would have to back up with your car or house. What this means is you run the risk of losing your car or home if you stop making payments.
Why a personal loan?
There are three reasons why a personal loan may be of great help in your quest to get out of debt.
One. Lower interest rates.
Unsecured personal loans typically have lower rates than credit cards. In the long run, you’ll pay less money in interest. You may also notice that your debt has been paid off quicker due to the lower rate of the loan. But this all depends on your credit score.
Two. Fixed Payments.
Another perk is the fixed payments. It’s great since it will not increase for the life of the loan. But they are usually much higher than the minimum payments on credit cards since you need to pay off the money within a couple of years.
Another tip is to ask your lender about pre-payment penalty. It’s when you pay your loan off earlier than the time agreed on and you get punished for it. Avoid these since the goal is to get out of debt as fast as you can.
Three. Gain peace of mind.
Personal loans may help give some peace to the stressed-out-debt-is-getting-a-little-too-high person. It’s because they give you a structured plan to follow. You know how much you’re paying every month and you know when your debt will be gone. You don’t need to be using credit card calculators to figure out when your debt will be gone if you pay $20 over the minimum.
Only listen to this advice if you’re serious about getting out of credit card debt and are leaning towards personal loans. Don’t put yourself in a position where you have more of it than with what you had started with.
You can do this by having an emergency fund. It will help pay for anything that life throws at you (and you know it will). You don’t want to use the credit card that you just cleared for such emergencies. A budget is also a tool you’ll need to help you stick with your debt-free goal.
In your journey to become debt-free, a personal loan is just one out of many tools you can use. You can take advantage of lower interest rates, fixed monthly payments, and enjoy the peace of mind of having your debt all in one place. But do your research to make sure that this method is the right one for you.
What other strategies have you used to pay off debt? Let us know by leaving a comment below.