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Using Personal Loans to Get Out of Debt

Posted April 9th, 2010
by Staff

It’s a paradox, to be sure, but you can absolutely use a personal loan to get out of debt. You see, debt consolidation can help you to get a handle on debt that’s out of control, and can help provide you with a lower monthly payment on a single personal loan than you had on multiple credit cards. Still, if you’re going to use personal loans to get out of debt, there are some important things you need to consider.

Before you sign the final paperwork on your personal loan, make sure you do these things first:

  • Consolidate as much of your debt as possible. Even if you have a lower-rate credit card that’s somewhere near the rate of your personal loan, you aren’t going to get out of debt if you don’t pay off all of your debt.
  • Make sure you can afford the payments. Just because the payments will be less than what you’re paying on your credit cards right now doesn’t mean you can actually afford it. Work out your budget in an organized and realistic way. If you can’t make the personal loan payments, you may have to consider some other strategies such as negotiating some of your debt. It will hurt your credit report, but it may be your only option.
  • Understand your loan terms. Make sure you know what the personal loan involves. If you’re using collateral, make sure you understand how that works. Know what your monthly payments are. Find out if there is any sort of a penalty for paying off your personal loan early. Know what kinds of fees will be assessed if you fail to make your personal loan payments.
  • Consider other alternatives. You might be able to get a lower-interest personal loan from a friend or family member. If you do, make sure to draw up loan papers – it will help both them and you feel better about the situation, and give them legal recourse if you fail to pay.

Ultimately, you can indeed use a personal loan to get out of debt. You just need to be smart about the way you do it.

Photo via SqueakyMarmot

Categories: Advice



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