Can I Get A Personal Loan To Consolidate My Debt?
Personal loans can be a great option for helping get a better handle on your debt by allowing you to consolidate high-interest balances into one low monthly payment. The benefits that personal loans offer are fixed interest rates and fixed repayment terms, which requires that you pay off the balance within a certain period of time.
Interest rates and terms may vary depending on your credit standing. To find the most advantageous rates, do the research and shop around with a number of lenders. The goal is to pay off your balance as quickly as you can within your budget.
Should you use a personal loan to pay off credit card debt?
If you're struggling with credit card debt and are in need of a debt consolidation loan, a personal loan may be the answer. Personal loans, if used responsibly, can be a great tool for paying off overwhelming credit card debt. Not only are the interest rates on personal loans typically lower than those on credit cards, they also offer manageable monthly payments.
The danger of using a personal loan to pay off credit card debt is falling back into debt by ringing up charges all over again. It's very easy to fall back into debt again if you're not careful you'll end up in even more debt because you're dealing with the personal loan and the additional credit card payments. If you plan to use a personal loan to pay off credit card debt it's best to focus on paying off the personal loan before you charging on your credit cards again.
How will taking out a personal loan affect your credit?
The impact of a personal loan on your credit will vary depending on your individual credit profile but in general, if the personal loan is the only new account, the change will be minimal. When you open a new account, like a personal loan, you'll impact several key areas of your FICO score calculation. Your credit report will reflect an inquiry, if approved you will also have a new account opening and then any balance associated with the personal loan will be included.
The good news is that personal loans are reported as installment loans so the balance on the account won't play a significant role in your debt utilization. Because personal loans are not revolving accounts, a credit card for example, your utilization ratio – the amount of debt you carry vs. your available credit limit –won't be affected and it should not have a negative impact on your credit scores.