When people are struggling under the weight of heavy debt, their first instinct is probably not to consider a loan. Afterall – you got in this mess in the first place because you couldn’t pay the financial obligations you’ve already incurred; why on earth would you ever want to add to that pile? I understand completely, and while I can empathize with that point of view, I don’t agree with it.
When you’re in debt, your number one priority is to pay off your debts as quickly as possible, and prevent more from piling up. Even with the best of intentions, and even with a solid game plan to settle your debts, it can take a long time, and you may struggle with accumulating interests rates and late payments that only compound the problem.
If this sounds like your situation, or yours are very similar, then a personal loan could absolutely be the solution you’re seeking. It may not seem obvious at first, but our guide will help you understand some of the biggest contributors to expanding debt, that you may not even be aware of, and how a personal loan can even help you save money while you pay off your debts.
Settling Your Debts
When you’re in debt, there’s a lot you have to think about. You may owe multiple people, with completely different minimums payments due, and completely different interest rates. At that point, you may be struggling to determine which is the best to pay off first, and where you need to save money. It’s a common scenario, and using a personal loan can solve all of these problems at once:
It “Eliminates” the Debt all at Once
When you are approved for a loan, that money is immediately put to use under the terms that you’ve agreed to. Using the funds afforded to you through a loan, you can pay off your credit card agencies, car lenders, outstanding mortgage balance, whatever the case may be, and pay them off all at once.
One of the most difficult parts of debt, that we touched on above, is sorting through all of the different lenders that you owe, with their different terms. It’s a common reason that people miss payments, let their outstanding balances grow, and fall into debt, where they remain for a long time. With a personal loan, as far as those you owe are concerned, your debt is settled, and they’ll leave you alone. True, you still owe the lender, but that’s only one person, which we’ll cover next.
It Consolidates Your Debt in One Location
Once you’ve paid off your other creditors and lenders with a personal loan, now your debt is fixed in one location – with your personal lender. Instead of worrying about multiple monthly payments, with various minimums, interest rates, and due dates, now there’s only one to worry about.
Not only will this help you keep track of your finances better, it can help you maintain your sanity. There’s nothing more intimidating than having your phone ring, with an unrecognized number, and you know without a doubt that it’s a debt collector. If you’ve got multiple collectors after you, from different agencies, it will quickly drive you crazy.
Once your debt is consolidated, and you’ve set the conditions that you’ll need to pay off your personal loan successfully, you’ll be in a much better position to put the rest of your life back in order.
Saving Money with Personal Loans
We’ve covered how a personal loan allows you to immediately pay off and consolidate debt, but personal loans also offer some opportunities to save money as well:
Avoid Higher Interest Rates
At the beginning, I mentioned that interest rates are very, very effective at keeping people in debt. Even if you’re actively paying towards an outstanding debt, if you don’t manage to pay off the full balance, there’s going to be more added to it come the end of the month. It can quickly become a no win scenario.
Rather than waiting for your funds to deteriorate, because you’re literally throwing money away for credit that you didn’t use, you need to take out a personal loan as soon as is feasible. Personal loans tend to have lower interest rates than those associated with credit cards, so you’re not wasting money on accumulated interest payments.
Avoid Multiple Late Charges
Even if you’re still struggling to make your payments on time, after you’ve taken out your loan, at least there’s only one late fee to worry about. While you can’t afford to miss payments, especially when you’re trying to reduce your debt, far better to owe one person’s late payment fee than several.
I’m not advocating for you to be irresponsible with your payments – a personal lender can charge you late fees, and have a debt collector hounding you just as easily as a credit card company. But I do understand that sometimes, things just happen, that we can’t control, and don’t leave us many options. Just like with interest rates, late fees do nothing for you except drain your finances, and it is absolutely critical that you avoid them, so if you’re going to miss a payment, make it one, not many.
Eliminate Renewal Fees
With other outlets you can use to get money, there tends to be an annual renewal fee. This is especially true with credit cards, but can also hold true for a line of credit that you set up through your bank. But personal loans don’t carry any renewal fees. Once you’ve paid any associated fees, or put in any sort of collateral that you and your lender have agreed upon, all you have to worry about after is making your monthly payments.
In fact, in might be a good idea to close any credit cards you have that having annually recurring fees. You need to be careful about doing this, as it will reduce your total credit limit, and remove an established history from your credit report, both of which could reduce your overall credit score. But if all that card is doing for you now is to drain money that could be going towards your personal loan repayment, it’s not worth hanging on to.