It happens to even the best savers—you hit a rough financial patch and have to live off credit cards for longer than you'd like. Or, maybe your business faltered and didn't bring in enough cash to cover both your taxes and your basic expenses, so now you have back taxes. Even if the debt you have isn't crushing you, it can still be onerous, especially if you have a lot of separate payments that prevent you from having a more-than-basic lifestyle.
One solution could be to get a personal loan, which is a general loan from a bank that you use for a specific purpose—in this case, paying off other debts. It may sound strange to take out another type of debt to pay off other debts, but there are positives.
Closing Out Old Debts
One of those positives is that, by taking out a new personal loan and using it to pay off all the other debt, you close out all these old debts that have been pestering your credit report. You could see a bit of a boost in your credit score as a result, though your own specific situation will determine whether you actually do. But your credit report will show all these paid-in-full debts and only one open debt, which looks a lot better to those checking your credit.
New Interest Rate
You also have the opportunity to get a better interest rate. If you have five separate debts with interest rates above 5 percent, for example, and you get a personal loan with an interest rate of 3 percent, you save money by using that personal loan to pay off the debts with higher rates. Of course, if you have several debts with lower rates than the personal loan does, then it might not be best to use a personal loan to pay off those debts, unless the number of payments is becoming a problem for you.
And that's another thing a personal loan can do: make your monthly budget so much easier to handle. Imagine reducing five or six payments per month down to just one, especially if that one payment is less than all five or six added up.
Personal loans do have their own requirements, so if you are interested in getting one, you'll need to talk to a bank. A loan officer can walk you through the process and tell you whether you'd be able to qualify, or what you could do to increase your chances of qualifying.
For more information on personal loans, contact a company like US Community Credit Union.Share