Should You Use a Personal Loan for Debt Consolidation?

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Should You Use a Personal Loan for Debt Consolidation?

15 November 2016
 Categories: Finance & Money, Articles

With good credit, you might be able to get as many credit cards as you want; however, having credit cards can get you in trouble. If you are struggling with balances on numerous credit cards and would like to become debt free, you might be able to accomplish this by taking out a personal loan. Before you rush into this option, here are a few things you should consider relating to your situation.

The Definition of a Personal Loan

A personal loan is a type of loan that does not require any collateral. A personal loan is considered an unsecured loan because of this. When you get a personal loan, the lender will have nothing to take from you if you fail to repay it. As a result, it is not always easy to qualify for a personal loan.

If you do qualify, you will need to do several things before accepting the loan. The first is to make sure you know exactly how much money you owe on your credit cards. To find this out, log in to your accounts online or call your credit-card companies. Find out the exact balance on each card and make a list of the debts.

As you do this, it might also be wise to find out your interest rate on each card. This is a good way to make sure that consolidating your debts with a personal loan is a good choice. If the interest rate on your personal loan will be higher than the rates on your credit cards, you probably should not go through with this.

Your Credit Score

Your credit score will play a huge role in your ability to get a personal loan and with the interest rate you get on the loan. Before you apply for a personal loan, find out what your credit score looks like. You can do this by requesting a copy of your credit report; however, you may have to pay a fee to find out your actual score. There are websites that offer free credit scores, but these scores are not always the same as the scores from the credit bureaus. These free scores do offer a good idea, though, of what your credit score probably is through the credit bureaus.

With excellent credit, you will have no problem qualifying for a personal loan, and you should be able to get a great interest rate on the loan. An excellent credit score is usually a score that is at least 760. If your score falls between 725 to 759, this is considered "really good."

If your score is in one of these categories, getting a personal loan for consolidation is probably a good decision. If your score is below this, you should carefully weigh out the pros and cons of consolidating with a person loan, if you are even able to qualify for one.

The Benefits This Would Offer

There are significant benefits offered through consolidation with a personal loan. The first is that it might be a good way to save money on interest. The second benefit is that you would be left with only one payment per month instead of multiple payments. The third key benefit is that you would have an exact time frame that lets you know when you will be debt free. There are other benefits of this too, and you may want to talk to a lender to find out what those benefits are.

If you are tired of making multiple payments each month to your credit-card companies, contact a lender that offers personal loans to see whether you qualify for one. Talk to a company such as Union State Bank to learn more.