Many people (incorrectly) believe that being in debt is bad, no matter how much you owe or who you owe it to. The truth is that we can’t access and use credit to buy homes or cars without going into debt. In many cases, the problem is that consumers have simply taken on too much debt. They’re sick of it and want to get out. We understand the yearning to be debt-free, but we also know how using debt (credit) such as personal loans to your advantage can help you get the things you want in life.
- No credit history – If you’re new to the credit market and have no credit history, you may be able to take out a small personal loan that will help you establish credit. Be sure you can afford the payments, and always pay your bills on time to establish great credit. Soon you’ll have access to more credit than you want or need. Be prudent, and never take on more debt than you can handle.
- Debt consolidation – Most people these days are looking for ways to get out of high interest credit card debt. Using a personal loan to consolidate credit cards is a great solution. You’ll get a low rate with fixed loan terms and monthly payments. Don’t close your credit card accounts, though, since having plenty of revolving credit available to you helps your credit score.
- Settling a balloon payment – Many types of loans these days come with balloon payments, lump sum payments that are due at the end of the loan term. If you haven’t saved up enough to pay the lump sum, taking out a personal loan is a much better way to deal with the situation than missing a payment. You’ll keep your payment history clean and establish additional credit at the same time.
- Rebuilding your credit – If you’ve had some negative payment history in the past, but are ready to meet your financial obligations now, taking out a personal loan with payments you can afford is a great way to show positive payment history. It may take some time to show your ability and willingness to pay, but after several months of on-time payments, your credit score should go up.
If you find yourself drowning in debt, taking on more debt is not usually a good idea. Unless you can use personal loans as a way of getting ahead, you shouldn’t borrow more money right now. Instead, make a plan reduce your debt load, and always review your credit report and score each year.