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Personal Loans For Debt Consolidation
Taking out a personal loan may be a good solution to your financial burdens. Renovating your home or taking an amazing holiday may have put you in more debt that you can handle. One use of a personal loan is to clear your existing high interest debts by paying them all off. This leaves you with only a single payment, and a single interest payment, to make each month instead of multiple payments, all with high interest rates.
Personal loans for debt consolidation may offer a discount if a borrower is standing on the verge of bankruptcy. There are numerous types of personal loans that are available in the market and in fact it is offering diverse types of opportunities. A borrower can easily get a good personal loan which is offering unique features if he takes a decision prudently. This thing can visibly ameliorate ones financial position and can offer a stress free life to a borrower. If you are trapped in credit card debt, then debt consolidation can help you a lot to get out of this tantalizing situation.
Taking out personal loans for debt consolidation can be a wise decision, under the right circumstances. When you have a lot of unsecured debt in the form of credit cards, personal loans can be to your advantage. However, if you borrow too much money, you might get in over your head. There are pros and cons of each side and looking at your case individually is the only way to determine what is right for your situation.
So what is debt consolidation? It’s a strategy sometimes used by consumers to better manage their debt situation. When you open a debt consolidation loan, you actually take out one larger loan and use it to pay off several smaller loans.
How can I use Personal Loans to Consolidate Debt?
Personal loans are often used to help individuals pay off higher interest debt, such as some credit cards, and get additional cash for things such as:
* Home improvements
* Unexpected expenses
Is Debt Consolidation a Good Idea for Those with a Bad Credit History?
Whilst a low APR debt consolidation loan is a great idea, a bad credit personal loan can result in increased monthly repayments. Debt consolidation with bad credit is normally a bad idea as unsecured personal loans charge a high APR of 50-60%.
If a line of credit was taken out before bad credit became a problem, the APR will be higher. Whilst a secured personal loan can mean a lower APR, it is rarely a good idea to turn unsecured debt into secured debt. Those considering a bad credit personal loan may find that they are better off pursuing a debt solution instead.
The following factors will govern your choice of personal loans for debt consolidation:
Loan Amount: The amount that people would like to borrow determines whether the personal loan should be secured or unsecured. Typically, amounts between $300 and $7,500 can be procured by applying for an unsecured personal loan. People who have significant debts would be better off opting for a secured personal loan since loan amounts over $5,000 may require a collateral.
Rate of Interest: A person who is interested in a personal loan that carries a low rate of interest should opt for a secured personal loan, assuming that he/she has an asset that can be used to collateralize the loan. It would behoove the readers to note that the term, ‘low’ is relative to the rate of interest on the debts that are to be consolidated. The rate of interest on a secured loan is lower than that on an unsecured loan. The lender’s risk is reduced since a lien against property can be used to settle unresolved debts. Hence interest, which is a reward for the risk that is undertaken, is proportionately reduced.
Term of the Loan: The loan that is availed for debt consolidation should have a longer repayment period as compared to the loans that are to be consolidated. Generally, secured personal loans have to be repaid within 10 years from the date of procurement, while unsecured personal loans have to be repaid within 5 years.
Credit History: The ability to procure an unsecured personal loan is contingent on the borrower having good credit scores and credit history in addition to the ability to repay the borrowed sum. This is because unlike secured personal loans these loans are not collateralized.
If you find yourself bogged down with multiple high interest bills each month, consider a personal debt consolidation loan. You will only need to pay a single payment each month, and you will only have one debt collecting interest. You will be able to choose the term of your loan, and you will be able to pay it back more flexibly then you would be able to pay back multiple debts. Getting a personal debt consolidation loan will not instantly rid you of all of your debt, but it will help you manage it more efficiently.