Using personal loans to consolidate debt can certainly lower your interest rates and simplify the management of your monthly expenses, but it still won’t solve your bigger issues.
Over the last decade, many people have been seeking personal loans for small projects, big purchases, and debt consolidation. You may think that taking a this loan for paying off the high-interest credit card debt is an easy and simple solution. As a matter of fact, it should not be taken lightly. Debt repayment should not only be about a change in mind-set, but also about a change from credit cards to bank loans.
So, in case you think you are not prepared to manage this responsibly, then taking a personal loan will only open you up to more spending and debt.
Here’s what you need to take into consideration before you run the chance.
You have to plan on paying off your debt
Before you make any big decision, it is essential that you have a plan to pay off your debt. You cannot just simply utilize your credit card balances and consolidate it into one huge loan without having any prior plan on paying that debt off.
You will have to consider whether or not is the new monthly payment feasible. If you don’t consider this, then you might as well find yourself struggling to pay it. This, in turn, will lead you to rely on newly balance-free credit cards.
When it comes to personal finance, just be honest with yourself. Lying to yourself regarding what you can and cannot do will only lead to more debt and financial disappointments.
Your Debt Is Significant But Definitely Not Out Of Control
Taking personal loans to consolidate debt is an ideal solution for a moderate amount of consumer debt.
If you are certain that you can pay off your debt within the next five years, then consolidation through a personal loan makes sense. However, if you expect paying off your debt within a year, then taking a loan is probably not worth the hassle.
On the other hand, if you are still wondering about how you will ever pay off your debt within the next five years, then taking a personal loan is likely to be not enough for you. In this situation, consider seeking credit counselling – wherein an expert will help you set your financial affairs in order.
Get Your Spending Under Control
You have to understand that consolidating your credit card debt with a personal loan does not make that debt magically disappear. Instead, it just moves it around.
Know for a fact that the reason you are still not charging your expenses to your maxed-out credit cards is that they are maxed out. Hence, taking a personal loan without managing your monthly spending will only get you out of your current situation.
If you plan to get your spending under control, then taking a loan might help you simplify and streamline your debt repayment. Otherwise, it will only get you more into debt.
Your Credit Score Is High Enough To Snag Low Rates
In case, your debt has affected your credit rating, then the personal loans available to you may or may not be cheap. You might as well continue paying down your credit cards as usual.
However, if you have huge debt balance but you still manage to pay the minimum due amount on time, then your credit rating is most likely to be high enough for getting a low rate. But if you keep missing your payments regularly, then availing a personal loan with low rate becomes difficult.
Even if you are unable to beat your existing interest rate by consolidating debt with a personal loan, there still may be an advantage, you will be making fixed monthly payments that will allow you to pay off your loan by the end of the term (mostly three or five years). Thus, making it impossible for you to get stuck in the trap of making minimum payments all the time.
We believe that personal loans are good for people who have moderate debt and a good credit score. It will help them simply or perhaps accelerate their debt repayment.
Personal Loans from Finserv MARKETS have a fast online process and involves minimal paperwork. The process is transparent and we do not believe in hidden charges.
Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!