Choosing Financial Freedom

3 Benefits Of Getting A Personal Loan To Pay Off Debt

17 August 2016

Aubree Mccoy

When it becomes hard to make the minimum payments on your credit cards, trouble in your financial future is brewing. If you have not done anything yet to solve this problem, you should consider taking action now, and you might be able to do this by applying for a personal loan. A personal loan is a loan you can get from a financial institution, and here are three benefits this will offer to you and your financial situation.

It Is A Way To Consolidate Your Debts

The first benefit of getting a personal loan to pay off debts is the fact that this allows you to consolidate your bills. If you currently pay 10 or more different creditors each month, you will no longer have to do this. You can use the proceeds from the personal loan to pay off every debt you have in full. This will leave you with one payment each month instead of 10 or more. This can help you save time, but that is not the only benefit.

It Could Help You Improve Your Credit

If you currently can barely make the minimum payments on your debt and still have decent credit, you might not for long. When you reach the point where you cannot pay the minimum payments, you might start skipping payments here and there, simply because you do not have enough money to make them. If this happens, your credit will suffer. Missed payments greatly affect your credit, because 35% of your credit score is made up of your payment history.

By consolidating, you will hopefully be able to pay off all the debts you have. Not only will this help you avoid negative payment history on your credit report, but it could offer another benefit for your credit score.

Personal loans are typically in the form of installment loans, and most lenders report these loans to the credit bureaus. Each month when you make your payment on your personal loan, you will actually be building your credit score. The first way this occurs is by adding positive payment history each month, and the second way is by decreasing your total balance each month. Both of these factors are great for credit scores, and both will cause your score to gradually increase.

You Will Save Money

Unless all your debts have low or 0% interest rates, consolidating with a personal loan will help you save money. If your credit score is relatively good, there is a good chance you could qualify for an interest rate of around 10% with a personal loan. For credit that is bad, the rate will be higher. You should find out what interest rate you would qualify for and compare it to the rates you are currently paying on your credit cards. When you do this, you might be surprised to find out what rates you are paying on these debts. A lot of credit cards have interest rates of 20% or even higher, and you will most likely qualify for an interest rate lower than this with a personal loan.

If you can find a loan with a decent interest rate, you will be able to pay off the principle of your loan a lot faster, and this will help you save money.

If you are ready to take control of your finances, save money, and boost your credit score, you should consider looking into a personal loan. If you would like to learn more about personal loans, contact a financial institution, such as Union State Bank, that specializes in personal loans to find out what you would need to do to apply for a loan. 

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