Should You Use A Personal Loan To Consolidate Debt?

Do you have several debts with high interest rates, and you're not sure what to do about them? The answer may be to consolidate all your debt with a personal loan. Not only is it a way to simplify your finances, but it can even save you money over time. Here are a few of the pros and cons of using a personal loan for debt consolidation

Why Consolidate Your Debt With A Personal Loan?

Many people have an easier time managing their debt when it is all in one place. You don't need a spreadsheet to track how much you owe to each creditor, and you make a single payment each month to pay off the debt. You'll see that big number go down and feel like you're making progress toward getting rid of the debt for good. 

A personal loan will often have a lower interest rate than other unsecured debt. This is especially true if you have a high-interest credit card that is quickly adding on interest to the amount that you owe. A personal loan can be the solution to actually reduce the total amount that you will owe for taking on debt. 

Consolidating your debt can also improve your credit score. You'll remove all of the small debts from your credit report and just have one large debt. This can look better to creditors if you need to borrow more money in the future. In addition, an easier time managing and paying your debt will improve your credit score simply by not missing a payment.

Why Should You Not Consolidate Debt With A Personal Loan?

Be aware that there are qualification requirements to receive a personal loan. This includes having a qualifying credit score and stable income. Not having these two things can lead to an interest rate that is high on a personal loan, because you are viewed as a more risky borrower. 

There are also potential fees associated with a personal loan, such as origination fees. It's important to know how much you'll save over time by consolidating debt with a personal loan, because if you don't have a lot of debt, the origination fees may be more than the amount of interest you save. 

Clearing your credit card debt may also make you more likely to start using that credit card again. If you got into debt due to a lack of self-control, then you may find yourself accumulating more debt once those credit cards are paid off. 

Contact a professional for more information about personal loans.