With the completely sorted world, not even a single person needs to take out a loan for consolidating the paying off their debts. But, the real world pushes you into situations where you need to borrow money as a way to manage your debts.
One of the biggest reasons is high interest rates on credit cards, having an average APR at 16,35 % on credit cards. This way the consumers get stuck paying huge sums of money in interest, which also reveals another situation. As you know, barely any of the minimum payment pays off their credit card balances, which pushes them to stop using the credit card for expenses.
That’s why at the end, certain challenges become the reason for many people to consolidate their debts with a personal loan, which demands lower interest rates.
When To Use A Personal Loan For Debt Consolidation
When you are choosing debt consolidation with a personal loan it means that you are trading one type of debt for another. Such a strategy provides considerable benefits for people who can qualify for the personal loan at an affordable interest rate and fair terms. There are various ways with which you can pay off your debt faster with a personal loan.
A Lower Interest Rate Personal Loan
When you want to qualify for a personal loan with lower interest rates, your documents of employment or credit history should be excellent or good with a credit score of 750 or higher. However, consider that as a minimum score which will be wanted by you for your personal loan approval, and having a higher score will reduce the interest rate more as the risk is reduced.
Also, the personal loans can help you pick perfect debt consolidation plans for your faster payments with different plans according to your present financial situation. Therefore, you must have a considerable years of continuous employment record of at least three years and also a good credit score.
Consolidation Of Debts Into One Payment
You may be juggling your credit card payments with different payment sources and APRs, which can get difficult for organizing a debt repayment plan. You need to be sure of making and maximizing your payments for each month. You can use the personal loan for paying our debts faster by getting rid of multiple payments and selecting one payment for one month, with a lower APR.
You can use a debt repayment calculator for determining the time for a sooner payment option of your debt with a lower interest rate.
For example, if you have a debt of $5,000 on your credit card having a 17% APR, and another $7,000 debt on a different credit card with a 21% APR. You need to put out $100 for each credit card debt per month payment for a total of $200 per month.
At such a rate, you cannot even pay off your interest for never paying the debts. But if you secure a personal loan of $12,000 in total for your credit card debt at 10% APR, you can easily contribute $200 per month and start to pay off your interest each month.
Reduce Your Monthly Payment
When you struggle under the credit card debt weight, you may spend more on the monthly payments than the earnings, where the personal loan with lower APR sets the repayment schedule for what you need to pay.
It can be possible in securing a lower monthly payment personal loan for your consolidated debt as long as enough repayment timeline is available. You can use a debt consolidation calculator or platform for the accurate calculations.
Timeline Of Debt-Consolidation Completion
Another big problem that occurs during debt consolidation is when you keep piling up the same by purchasing and not paying the debts on time. When your personal loans happen with a fixed interest rate, you need to pay fixed monthly payments and the repayment schedule dictates your timeline for paying off the debt for good.
The personal loan option reduces your debt consolidation timeline and you can easily switch to cash or debit cards for your expenses which cannot be stopped. This way you can get rid of the date deadlines easily.
The Bottom Line
You can imagine never paying the credit card bills ever again, and actually you have the money for wanting to take a vacation or invest somewhere in recreation. But, the focus on debt repayment can free up your cash every month, even with your main goal of extra saving being targeted.
The personal loan option makes more sense for consolidating your debts and making sure that you consider every option and tool of personal loaning available for you.
This can get you out of debt easily and you can stop racking up your bills which cannot be paid. You can switch to a debit card or cash payment method instead of credit card or debt ridden payment mode.
Author Bio:
Abhishek Kumar is your common digital hooman with marketing as profession, finance as a curious habit, and sports as a survival mechanism. He has written this post for IndiaLends, leading website for Personal Loans in India
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