6 reasons why a personal loan is ideal for debt consolidation
The right personal loan could make your debt much cheaper and easier to pay off.
- Personal loans allow you to borrow money for almost any reason.
- They often come with affordable interest rates.
Personal loans can be used for debt consolidation. This means that you are taking out a new personal loan and using it to repay several existing creditors. You can use a personal loan to pay off credit cards, medical debt, other personal loans, and more.
But why do you want to do that? Here are six main reasons why a personal loan can be the ideal tool for consolidating your debt.
1. You can use the loan proceeds for anything you want
Most personal loan providers offer tremendous flexibility in how you use the money you borrow. You may not even ask what you will do with the loan proceeds.
As a result, after borrowing, you can pay off pretty much any debt you want, from credit cards to medical debt to other personal loans.
2. Personal loans often offer competitive interest rates
The interest rate on a personal loan is often well below the interest rates on other common types of debt, such as mortgages. B. Credit Card Debt.
If you can lower the interest rate on your borrowed funds, repayment should be cheaper over time because you don’t have to give the lender as much money for the privilege of access to credit.
3. Many personal loans allow you to borrow a large amount
When taking out a personal loan, it’s often possible to borrow a large amount of money — sometimes as much as $50,000 or $100,000, depending on your income and other financial requirements.
Hopefully, since you can borrow a lot, you should be able to use the proceeds from your personal loan to pay off most or all of your outstanding debt. This simplifies the debt consolidation process because you don’t have to choose which debts you want to pay off with your consolidation loan, and you’re not left with multiple creditors when you’re done with the process.
4. You can lock in your interest rate with a personal loan
Many lenders give you the option of choosing a fixed rate personal loan. When you refinance an adjustable-rate debt into a fixed-rate loan, you no longer have to worry about interest rates rising and your debt becoming more expensive.
You have absolute certainty about what you will pay each month because your monthly payments and borrowing costs will never change.
5. Personal loans have fixed repayment schedules
When you apply for a personal loan, you choose to pay off your personal loan for a set period of time, e.g. B. three years or five years. This schedule does not change once you have signed your loan agreement and committed to borrowing.
As a result, you’ll know exactly when to complete your debt settlement plan and be free of any debt you’ve consolidated.
6. With a personal loan, you usually don’t put any assets at risk
Typically, when consolidating debt, you use an unsecured personal loan. That means you don’t have to use any assets as collateral — unlike with a home equity loan, where your home secures the loan.
Each of these benefits sets personal loans apart from other debt consolidation options, such as: B. Home equity loans or balance transfers. If you’re hoping to consolidate debt this year, a personal loan should be considered when deciding what new loan to take out to pay off your existing lenders.
The Best Personal Loans of Rise for 2022
The Ascent team has researched the market to bring you a shortlist of the best personal loan providers. Whether you want to pay off debt faster by lowering your interest rate or need some extra cash to tackle a big purchase, these top tips can help you achieve your financial goals. For the full rundown of The Ascent’s top picks, click here.