So you have an emergency expense or simply too much month to get through on what you have left and you think a loan is the only option to get you through this difficult time. While short-term personal loans can be helpful if used correctly it isn’t always the answer to every situation and isn’t a long-term solution to your debt issues.
So how do you know if a loan is an ideal option for you and what other options are there if not to take out a loan? We’ll answer just that in this post
Advantages of using a personal loan to pay off debt
Personal loans will carry the biggest benefit if you’re currently paying high-interest rates on multiple credit card accounts. Here’s why.
1. Potentially lower interest rate
Even a small change in your interest rate can make a big difference, especially if you have a lot of credit card debt. Keep in mind that there’s no guarantee your interest rate will be lower on a personal loan. It will depend on your creditworthiness.
2. A single payment
Moving debt from multiple credit cards to one credit card consolidation loan can simplify your debt payoff. For example, you won’t have to worry about various payment dates and amounts. Plus, making one payment instead of several could help keep you on track and organized with your bill payments.
3. Quicker debt payoff
With just one debt payment every month and one fixed interest rate, you might be able to pay off your loans on a shorter timeline. That’s mostly because credit cards don’t have a set repayment period. In fact, if your balance is high enough, you could never get out of debt by paying just the minimum payment.
Disadvantages of using a personal loan to pay off credit cards
Although there could be benefits to taking out a personal loan to pay off credit cards, it also carries inherent risks. Research your options and weigh these cons against the pros before taking out a credit card consolidation loan.
1. Potentially higher interest rates
Not all personal loan companies offer low-interest rates so be sure to check the terms and conditions of the loan and be sure of what you’re getting yourself into.
2. You might not be able to afford it
If you have a large credit card balance, moving your debt into consolidation loan you have to pay off in just a few years might break your budget for the foreseeable future and you could suffer even more financially.
3. You might have to pay a fee
Some personal loan companies charge an origination fee. This fee typically ranges from 1 percent to 6 percent of the loan amount. So, depending on the situation, using a personal loan to pay off credit cards could be more expensive, even if the loan has a lower interest rate.
Is a debt consolidation loan the best move for you?
If you have a solid credit history and high-interest credit card debt, a debt consolidation loan could help you save money on interest and repay your debt sooner. At the end of the day, make sure you’re taking the time to consider all your debt consolidation options. Even if you don’t qualify for the best deals out there, you’ll have the knowledge to make the most informed decision.
A long-term solution in using debt review
Now that you realise the pros and cons of using a loan you may think twice about getting one. While it may cover you in the short run you’re actually still shackled to debt just from a different provider. The key is get rid of all your debt in a way that is manageable and still has you living comfortably which is what debt review offers you.
To apply for debt review it takes 5 easy steps which you can see go through here
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Manage your debt effectively
If you’re feeling overwhelmed by your current financial situation, feel free to contact us. To Speak to one our consultants about debt review contact us here.