You’re in a stressful stage in your life if you’re troubled by multiple debt obligations. It will affect not only your finances, but also your personal freedom and mental health. Just the thought of how to get rid of your debts is already a difficult one to handle. It’s also hard to purchase the stuff you want or need because there are debts you need to pay first. Now, how to solve your debt problem? Well, one of the methods to solve your debt problem is debt consolidation. You can take out a personal loan to consolidate your debts into one monthly payment at a lower rate of interest (check out Match Financial’s online personal loans to pay off debt right now). Here’s a blog post for you to learn more about personal loans for debt consolidation and how this method of repaying your debt works.
What are Online Personal Loans?
An online personal loan is a financing option offered by an online lending company. It’s under the category of unsecured loans, meaning there’s no collateral to pledge for you to get approved for the cash you need to borrow. The sum of cash you can take out for this loan type varies by lender, but commonly you can borrow $1,000 to $70,000. The annual percentage rates also differ by lender and credit score. Online personal loans have repayment periods ranging from 12 to 60 months.
Using a Personal Loan for Debt Consolidation: How It Works?
It’s a smart choice to use a personal loan to consolidate your outstanding debts into a single debt. If you have high-interest credit card balances and loans, you can go for debt consolidation using a personal loan with a more affordable rate. In this way, you don’t only make the repayment easier to handle, but you also save money on the interest. More and more people who have debts choose this approach because of those main advantages. Once you’ve paid those old debt obligations, the only thing you need worry about is the repayment for your new loan.
Upsides and Downsides of This Debt Repayment Method
Of course, there will always be pros and cons to everything, and using a personal loan for debt consolidation is no exception. You should learn about these advantages and disadvantages for you to determine if this debt repayment approach is right for you.
Pros
- You make your debt repayment more manageable because you’ll only make one monthly payment to one lender.
- It’s possible to avail of a personal loan with a lower interest rate. If your current debts have higher interest rates, consolidating them using a lower-rate personal loan is a good money-saver.
- If you pay a lower interest for your debt consolidation loan, it means that your monthly payment will also be lower. This makes it easier for you to make consistent payments and get rid of your debt faster.
- Monthly payments for online personal loans are fixed, meaning that you know the amount you have to pay every month. This advantage also allows you to budget your loan repayment efficiently.
- You can pick the repayment period of the loan. As mentioned earlier, this loan type has repayment terms ranging from 12 to 60 months.
- If you make timely and consistent payments, there’s the possibility of improving your credit.
Cons
- Not all loan providers will agree that you use a personal loan to consolidate debts. So, it’s crucial to talk with your lender regarding this matter.
- It’s hard (if not to say impossible) to avail of a personal loan with an advantageous rate if your credit score is bad. Don’t go for an expensive rate loan if you want to consolidate debts because it doesn’t serve the purpose of lowering your monthly payment.
- Choosing a personal loan with a longer repayment period can add on the total cost of your debt payment due to the interest incurred every month.
- Most online personal loans have ancillary fees, such as origination fee, prepayment fee, and late-payment fee. Make sure to ask your loan provider or read the terms and conditions to know about this matter.
Things You Need to Consider Before Applying
Since you want to lower the cost of your debt repayment, you should see to it that you pick a personal loan with an affordable interest rate to consolidate your debts. Also, assess how much debts you currently owe to ensure that you decide the right loan amount of your personal loan. When looking for a lender, it’s also crucial to pick one that has an excellent track record and customer reviews. Avoid scammers and predatory lenders!
Takeaway
An online personal loan can be used as a means to consolidate your debts and make your debt payment more manageable. You can also avail of a lower-rate online personal loan, which makes the total cost of your debt affordable. Take note of this guide to understand how this debt consolidation method works.