Posted on: 16 January 2019
Living with maxed out credit cards and paycheck to paycheck is not a great way to live, yet there are many people who are in this situation. If you have high balances on your credit cards and need a way out, you may want to consider getting a personal loan to pay these off. Personal loans are just one option you have for consolidating debts, and they are often a great option. Here are some details about personal loans and the benefits they offer for people in this position.
What is a personal loan?
A personal loan is a type of loan you can apply for that generally does not require collateral. It is considered an unsecured loan when no collateral is needed, which means you will not have to tie the loan to something you own. In other words, a personal loan offers a way to borrow money to use however you would like. Many people use personal loans for consolidating their debts, while others use these loans for making home renovations, taking a vacation, or paying off a different type of loan they have.
What are the benefits of using a personal loan for debt consolidation?
When you have maxed out credit cards, there is a good chance you have multiple cards. If you have four different credit cards, for example, you will have four different payments to make each month. When you consolidate with a personal loan, you end up with one payment. You can take the money you receive from the loan and pay off each of the credit cards. Not only is paying one payment a lot easier than making four or more, but you might also save money on the interest.
You may be able to get an interest rate as low as 6%, which may be significantly lower than the rates you are currently paying on your credit card accounts.
What effects does this have on your credit?
Additionally, using a personal loan to pay off your credit card accounts may help you improve your credit score. This occurs from the effects of the getting the loan and paying off the debts. First of all, when you pay off your credit cards, your credit score will typically increase because your borrowed debt compared to your available credit will instantly drop to zero. Secondly, when you start paying off the personal loan, it will build your payment history, and this too causes an increase in credit score.
If you are interested in finding out if this is a good option for you, talk to a lender that offers loans.Share