How a Personal Loan Can Help You Consolidate Debt
Posted On October 6, 2021
Debt can have both a financial and an emotional impact on your life. Sometimes, it’s not just the dollar amount that you owe but also the number of bills that you need to keep track of each month.
If you’re sick of logging into five or more accounts on different dates, you might be ready to get a personal loan for debt consolidation. A personal loan may help lower your interest rates and eliminate late fees.
Debt Consolidation with a Personal Loan
Some people are so attracted by the idea of consolidating their bills into one monthly payment that they jump at the first offer they get. There are literally hundreds of companies eager to help people consolidate their consumer debt. But just because you consolidated your debts into one monthly bill doesn’t necessarily mean you saved money.
Shopping for a personal loan with a competitive interest rate may be a good option for dealing with your debt. When you find a personal loan with a competitive Annual Percentage Rate (APR) and use it to pay off your other debt, it could lower your total payments over time.
Pros and Cons of Debt Consolidation
It’s a good idea to weigh the pros and cons when deciding to make any major financial move. While consolidation may seem like a good choice on paper, you may want to consult with a qualified financial adviser before making a decision.
Your success depends on your personal spending habits. Since the goal of consolidation is to eventually eliminate your debt, you may want to keep your credit cards on a high shelf until your loan is paid off. When you’re in control of your credit usage, you can enjoy the pros of debt consolidation:
• Your debts will be simplified into one monthly bill.
• Your monthly bill may be smaller than your bills were before you consolidated.
• You may pay a lower interest rate, which means you could save money in the long run, depending on the terms of the loan.
Your on-time payment history and amounts owed can make up a whopping 65% of your overall credit score.
On the other hand, if you’re not in control of your credit usage or have a low credit score, you may encounter some of these cons to taking out a personal loan for debt consolidation:
- If you don’t use the funds to actually pay off your credit cards, you’ll just be in more debt.
- You could pay off all of your credit cards and then use them again in a moment of weakness.
- If you have a low credit score, you could get a personal loan with a high interest rate. If you do have a low credit score, you may want to work on increasing it before applying for a personal loan.
When you’re ready to consolidate all your debts into one monthly payment, you’ll want to choose a personal loan with a lower interest rate if you qualify. That way, you won’t just be getting more organized; you will also be paying less to become debt-free.
So, where should you begin your debt consolidation quest? You can start by checking the Annual Percentage Rates (APRs) on your existing debts. Find out which one has the lowest APR and then make it your goal to find an even lower APR on a personal loan.
At Splash Financial, we work with credit unions and other lenders to provide competitive interest rates on personal loans. If you are ready to consolidate your debt, click the button below to explore your options.
The information provided in this blog post is not intended to provide legal, financial or tax advice. We recommend consulting with a financial adviser before making a major financial decision.