Consumers are increasingly in debt, and with higher interest rates, it is more expensive than ever. The persistent debts They can also wreak havoc on your personal budget as you try to fit monthly payments in with other everyday expenses.
According to Hillary Seiler, financial advisor and founder of Financial Footworn, corporate financial wellness expert, and personal finance education advocate, a personal loan can be a good optiondepending on your situation.
“A personal loan can be a good option for those with decent credit to consolidate their debt into one payment and pay it off faster. Plus, the versatility and lower interest rates can make it an attractive way to get out of debt.” says Seiler.
here it is three occasions when a personal loan can be a good idea.
1. You have several debts to consolidate
The debt consolidation It is one of the most popular reasons to obtain a personal loan. Consumers often take out a personal loan to consolidate credit card debt.
Can Look for a debt consolidation loan and get one for the full amount of the debt that you have. When approved, you will pay all your debts with that loan. From then on you only have to make one payment a month instead of several, and you will save money on interest.
“This is what can make taking out a personal loan for debt consolidation make sense. You can improve your cash flow and pay off your debt faster than if you did it card by card,” Seiler says.
2. You want to improve your credit score
Taking out a personal loan and paying it on time could help improve your credit score, especially if you have a history of defaulting on other debts. Paying off debt with a personal loan can help your credit utilizationwhich determines about 30% of your FICO score —Fair Isaac Corporation, a particular brand of credit score. —.
If your credit report shows mostly credit card debt, adding a personal loan could also help your credit mix, which also influences your credit score. Have different types of loans and demonstrate that you are capable of managing them responsibly It is considered an advantage to your score.
“Paying off revolving debt will positively impact your credit score because your credit utilization decreases, and if you start utilizing credit better, it can improve your credit score,” Seiler says.
3. You can get a lower interest rate on existing debt
Unlike other types of loans, it is possible to get a personal loan for almost any purpose, and some personal loans—depending on the criteria—can have Lower interest rates than credit cards.
If you have a payday loan, for example, it is likely to have a much higher interest rate than a personal loan from a bank.
Additionally, if you have an old personal loan with a higher interest rate than it would be today, Replacing it with a new loan could save you some of money.
“A personal loan can be a great option if it can save you money, allow you to get a lower interest rate and definitely use it to pay off debt. At this time, it is important to reduce debt and save more money, and a personal loan can help you do it,” concludes the financial coach in her statements to Business Insider.
2024-03-05 07:24:38
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