Anyone who has experienced having several debts at the same time will surely know the struggle it entails. It’s hard to get by in life if your debts are already causing a huge burden on your finances. The money you need to pay for your essential expenses will go towards your debt obligations. It will also have a negative impact on your health because of the stress.
This situation is indeed a challenging one. The question is: how can you get out of this predicament?
Well, most people who are in this kind of situation will go for a debt consolidation loan to pay off their debts. This method means taking out an online personal loan to merge your debts into a single payment with a more advantageous annual percentage rate. You can apply for personal loans on Matchfinancial.com if you opt for debt consolidation.
Check out this guide to know what is an online personal loan and how you can use it to pay off your debts.
What is an Online Personal Loan?
This loan type is commonly provided by an online lender. If you apply for an online personal from a reliable lender like Personal Money Store, you don’t need to pledge a valuable asset to qualify for the loan amount you want to borrow. Typically, you can borrow a sum of cash amounting from $800, $1,000 to $75,000, depending on your credit and the loan provider’s terms.
The interest rates for online personal loans vary from one lender to another, and your credit score also affects the interest rate you can get (the better your credit, the lower the interest rate). This loan option has a payback period that can last up to 1 year or 5 years.
How You Can Use This Loan Option for Debt Consolidation?
Personal loans have various purposes, and one of them is for debt consolidation. If you find yourself struggling to get rid of high-interest loans and credit card balances, a personal loan is a good option to merge them into a single debt. However, you need to ensure that the APR of your new loan is affordable for you to minimize the cost of your debt payment.
Pros and Cons of Using a Personal Loan to Consolidate Debts
Every debt relief method has its benefits and drawbacks, and using an online personal loan to consolidate your debts is not an exception. Here are the pros and cons of this debt consolidation method.
Benefits
- It will be easier for you to manage your debt repayment because there’s only one lender you’re paying to.
- Online personal loans typically have favorable annual percentage rates, especially if your credit is good to exceptional. If you can avail of a low-interest rate loan, you can use it to consolidate high-interest loans or credit card balances and save money in the process.
- You can pay off your debts faster if you can get a debt consolidation loan with a low annual percentage rate. It can allow you to pay the loan on schedule consistently, which helps avoid late-payment penalties and damage to your credit.
- Another advantage of personal loans is that the amount you’ll pay every month is fixed, which makes it easier for you to create a budget for your debt repayment.
- You can choose how short or long you can pay the loan. Online personal loans have repayment terms that can last up to 1 year or 5 years.
- You can boost your credit rating, especially if you pay your monthly installments timely and consistently.
Drawbacks
- You need to look for a loan provider that allows you to use a loan for debt consolidation because not all lenders let their borrowers use this loan for that purpose.
- For people with bad credit scores, it’s hard to get approved for an online personal loan with a low-interest rate. If the lender gives you a high-interest rate loan for debt consolidation, you should turn it down because it defeats the purpose of reducing the cost of your debt repayment.
- You’ll pay more on your debt consolidation loan if you pick one with a longer payback term. Just think of how many months you need to pay it, and then add the interest charged each month.
- The online personal loan you’ll take out may have extra charges, such as origination, early-payment, and late-payment fees. Don’t hesitate to ask questions to your lender concerning these ancillary charges.
Takeaway
If you’re going to consolidate multiple debts into one single debt, it’s a good option to take out a personal loan for that purpose. This loan type commonly has a favorable annual percentage rate and repayment term. As such, you can reduce the payment you have to pay every month and pay your debt faster.
Just review this guide if you need to understand how this debt relief method works and what are its pros and cons,
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