When facing a catastrophic situation, it is sometimes necessary to resort to extreme measures. However, this doesn’t imply that decisions about finances need to be made hastily, let alone now. If you find yourself in credit card debt, consolidation may be the answer to your problems.
But choosing a particular method can be confusing. That’s why we’ve written this article.
“For most people, personal loans are a way to limit their debt load over time,” said Kevin Malior, senior customer manger at Universal Credit. “However, there are advantages and costs to such a loan.”
The process can be complex. How can you tell if it’s the right thing for you? Where can you find reliable lenders who are willing to help you?
After reading this article, you’ll understand that getting a personal loan may or may not allow you to pay off your debt, and you’ll know where you stand on how to get one and the best ways to stick to a plan and pay off your debts entirely. This process is going to involve some willingness from you, but with the proper resources, your credit card financial obligations can be paid off in a few simple steps.
How does it work?
Personal loans are generally unsecured, so no collateral is required to obtain one[1]. Instead, lenders will review your financial history, such as your credit score, debt load and repayment habits[2]. Based on this information, a fixed or variable interest rate over the life of the loan, or a combination of both, will be offered.
Often, these interest rates are as low as 4.99% but can jump to 35.99% or higher[3]. You should ideally find an interest rate lower than your credit cards to optimize your loan.
“By paying off your balance with the loan, you reduce the amount of interest you pay over the loan term,” said Maria Eliot, credit analyst at Debt Crushers.
Personal loans: benefits and drawbacks
Regarding personal loans, the opinions of financial experts are divided. Below are a few examples:
The benefits
- Lenders offer an array of eligibility prerequisites so nearly everyone can qualify[4].
- Move from a minimum payment to an action plan[5].
- It can help improve your creditworthiness[6].
- Because the payments (as well as the interest) are specified, you will be able to set a financial plan and anticipate the end of your debt[7].
- It can be used to address just about anything without necessarily any restrictions[8].
- Depending on eligibility criteria, it is possible to borrow a large or small amount[9].
The drawbacks
- Not all of these lenders are your friends or want your success. Conduct a thorough investigation.
- By the way, penalties for late payments and credit score hits are common with personal loans. Be aware of these before you agree to any loan[10].
- Borrowing helps you deal with debt, but it doesn’t alter your mindset[11]. Limit your spending by developing a plan beforehand and sticking to it.
- They may come with fees and penalty charges. Lenders want to help you but also intend to be compensated for all those administrative formalities[12].
Ultimately, you will need to set priorities for your monetary goals to come on one side or the opposite. This article is only one of several steps you can follow to reach that ultimate decision.
Top models for 2020 in personal lending
To speak of it is fine, but what does it involve in reality? Well, we present some companies to call on to implement a strategy that will assist you in achieving your goal of ditching that pesky credit card debt.
- Payoff: Debt consolidation, specifically those stemming from credit card fees, is a specialty at Payoff. Additionally, they will not burden you with any fees if you pay late[13].
- Upstart: We are many with limited credit histories that don’t suit other lenders. Upstart opens doors for you and enjoys excellent customer service reviews as well[14].
- Marcus by Goldman Sachs: No fees associated with file creation are inherent with this lender, which is also ideal for bank loans and consolidating debts[15].
- Upgrade: If your credit isn’t really up to snuff, but you need some quick cash, Upgrade provides a solution. Plus, you won’t be charged a prepayment fee[16].
- LendingClub: LendingClub does well with small loans, especially if you resort to a co-signer. In addition, this company features peer-to-peer borrowing packages[17].
- PNC Bank: PNC Bank provides secured/unsecured loans to individuals. No origination, prepayment or annual fees are applicable either[18].
- Citizens Bank: Are you accumulating debts over $5,000 and have good credit? Citizens Bank is known for its quick turnaround application and payout process[19].
- Social Finance (SoFi): The winner of the highest overall ranking in numerous reviews, SoFi also favors holders of good or excellent credit and offers unemployment coverage[20].
- LightStream: Do you have good credit and want to renovate your house? LightStream has great repayment terms and a low-interest rate available[21].
Having learned how taking out a personal loan can be helpful in consolidating your debt and having a list of people to contact, what needs to be your next move?
Your next moves
Initially, you should know that alternatives remain. If no solution seems appropriate as you learn more about personal loans, look into other options. Balance transfers, mortgages or other types of debt consolidation can be used. The choices are plentiful.
If you are convinced of its relevance, continue your research. Start by reviewing your current financial situation. What is your present solvency? What is your total debt load? How much can you afford to pay each month? Then, narrow your list to a small number of lenders. Contact the representatives to learn more about their process.
“Many propose a pre-authorization procedure,” said Erika Mallot, manager at Consumer Credit. “Getting pre-approved or submitting an application to a lender can lower your credit score by a few points.”
However, you should not be required to pay to apply to a lender, but find out beforehand[22].
Once you submit the application, start comparing offers. Be sure to look at the big picture and read the small print. A seemingly good offer may hide an unpleasant increase in the interest rate after a few months of payments.
Taking out and getting the loan is not your last step. Get your financial strategy right and make your payments on time every month. And when the last payment arrives and your entire debt has been cleared, fully check out your credit record: “Creditors are expected to automatically notify the credit offices that your account is either paid or current. However, errors and mistakes are common[23].” Don’t waste all that due diligence effort.
Options to consider
Personal loans are an ideal solution for dealing with unmanageable debt. However, you must be careful with this type of debt consolidation. Take the opportunity to change your economic situation, while strengthening your financial IQ. Expand your knowledge of investing and saving to have a comfortable financial future. Everything begins with you.
