Looking for budget relief? A personal loan may be the answer

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A personal loan is more than a renovation.

Key Point

• Debt consolidation loans are a good way to pay off high interest debt.
• Beware of expensive add-ons, sometimes called “origination” or “management” fees.
• The higher your credit score, the more personal loan options you have. However, even with a low credit score, you may be able to get a personal loan at a much lower interest rate than you are currently paying on other debt.

If you’re in high-interest debt, you know how stifling it can be. Worse, when your wallet is filled with maxed-out credit cards, payday loans, or other super-high-interest debt, getting out of the bottom becomes more difficult.

debt consolidation

Most personal loans can be used for anything you want, from installing a spa-like bathroom in your home to covering the costs of your child’s wedding. One is a debt consolidation loan. Here’s how it works:

• Total high interest loans, credit cards and other liabilities.
• You apply for a personal loan with that amount. If approved, most lenders will deposit your earnings directly into your checking account. Some lenders pay off high-interest debt directly on your behalf.
• Make a fixed monthly payment until the loan is paid off.

real benefits

Let’s say you have 4 credit cards, each with a balance of $5,000. The average interest rate on each card is 17%. So you owe a total of $20,000 at 17% interest. Of the four cards, the minimum monthly payment is probably around $600. Continuing to pay off $600 in full each month would take him 46 months to pay off the debt and he would pay $7,259 in interest.

Now let’s say you have a high credit score and take out a personal loan with an interest rate of 8%. Continuing to make monthly payments of $600 would take him 38 months to pay off the loan and in total he would pay $2,694 in interest.

If you’re having trouble with the minimum monthly repayments, you may want to consider a longer loan term. You’ll pay interest over the life of the loan, but you’ll pay less each month. For example, if you extend the loan term to 60 months, your payments will be $406 and you will pay a total of $4,332 in interest.

to shop

Shopping for the best interest rates and terms costs money. That means at least he took the time to reach out to three lenders. Most lenders will perform a “soft” credit check before letting you know if a loan has been approved and what the interest rate and terms will be. A soft credit check means there is no impact on your credit score. Only when you decide to go with a particular lender do you run a rigorous credit check. A hard check will lower your credit score a bit, but it will be restored after a few on-time payments.

what to watch out for

This may sound counterintuitive, but the lowest interest rate isn’t always the best loan. That’s because some lenders charge high fees. For example, some lenders charge an initiation fee or administration fee. If you have a good or excellent credit score, there is absolutely no reason to accept such a loan.

Once the lender tells you that your application has been approved, be sure to ask about any fees included in the loan. Read the loan documents carefully before signing.

A low credit score may limit your loan options (and delay payment of origination fees). However, payday he might get a lower interest rate on a personal loan if he wants to get out of high interest debt like a loan.

If you find yourself spinning the wheels when trying to get out of debt, a personal debt consolidation loan may be the budget relief you’re looking for.