Personal Loans Can Get You Out of Sticky Debt Situations Quickly

Do not let your credit card bills and other daily expenses drag you down. Missed payments can reflect poorly on your credit score. There are millions of people out there struggling to keep up with mortgage payments, automobile loan payments, utility bills and lifestyle expenses. Our habit of whipping out credit cards for every payment is not helping the situation either. So, when we tell you that you can take out a personal loan to improve your credit score, you must think we are going crazy amidst the economic crisis.

What are personal loans?


personal home loans

After all, a loan is a debt, and how can another one ever help in improving your financial situation? It turns out that it is not only a matter of perspective, but it is also a matter of intricate debt management. To understand the ins and outs of personal loans, you first need to understand what personal loans are.

Personal loans are typically between $1000 and $100,000. They come with both variable and fixed monthly interests. These loans are usually unsecured. They do not have any collateral, unlike your home mortgage loan. The risks involved are much lower, and you can, of course, use your personal loan for consolidating your existing debts.

What are the advantages of opting for an unsecured personal loan?

Since you do not pledge any collateral, the creditor cannot claim any of your personal property if you default on the payments. That is quite the relief, given the present financial scenario. 

The interest rates on an unsecured personal loan are much lower than credit card interest rates. We are not saying they are cheap as chips. They are costlier than secured loans, but they are certainly friendlier than credit card debts.

If you have a decent personal credit score, you can manage to get a personal loan at an amenable rate. In fact, the better your credit history, the lower the interest rate you can find. Not all personal unsecured loans have to bear a high interest. So, shop around a little before you decide on one Loan Company.

How can you use a personal loan?

Well, personal loans are not just for home improvements and personal purchases. They are great for financing your business and refinancing your existing personal debts as well. Contrary to home loans and student loans, which need to be spent on the home purchase or innovation and education purposes only, these personal loans give you the chance to redeem your credit score and repay your outstanding debts without any fuss.

Debt consolidation

Debt consolidation can apply to businesses as well as individuals. For example, Claire has a home loan and a car loan at interest rates of 8% and 9.7% per year. She has missed her last three credit card payments. Her student loan payments are due on the 22nd, and her home loan payments are due on the 3rd. She is currently in a tight spot because she did not get the promotion and salary hike she was expecting this year. She has her own lifestyle expenses and utility bills to pay. Missed payments, penalties, and multiple bills are getting her worked up every day.

It sounds quite hopeless, doesn’t it? However, upon a closer inspection, you will find that Claire has actually got some of the better home loan and automobile loan deals. The interest rates are fair, and she has time to pay her creditors off. Her problem includes multiple payments on multiple dates and different interest rates. It is easy for you and me to understand the pros of her situation from afar, but it is likely that this silver lining is currently eluding Claire.

It is time for some financial redemption

During these times, people need someone to help them understand the dynamics of their finances. So, there are two ways to use your personal funds for redeeming your credit scores and financial situation:

  1. You can always use the personal loan money to pay off your existing high-interest debt. It mainly includes your credit card bills that can sneakily charge you a bomb in interest rates. Since personal loans have a much lower interest rate and a smaller APR, paying off other loans with it makes complete sense.
  2. You can combine existing multiple debts into a single personal loan. It is the primary process of debt consolidation. You can always take out a lump sum personal loan to pay off your consolidated loan amount to multiple debtors, and settle with a single payment at much amicable interest rates.

Cut down your credit card interests

It is true! You can get your personal loan to reduce your credit card interest rates by 50%. That is quite the revelation, but it is utterly possible. You just need to ensure a few key points:

  1. You have a decent credit score, preferably above 650.
  2. You need to check the repayment terms and credit period of the new loans.
  • Compare your APR along with interest rates or you can end up paying much more than you expect to.
  1. Short-term loan repayment periods are better for everyone. They cut down on interest costs and help in getting rid of existing debts quicker.

Climbing out of the well once is NOT enough

Let’s face the fact here. Just getting out of debt once is not enough. Debt consolidation is not the destination and should not be a goal for anyone out there. It is merely the pit stop for a long race. You need to ensure that you do not spiral back down into debt once again in the future. 

  1. Find out how you got into so much debt in the first place.
  2. Are you spending too much? Is someone else using your credit card details? Are you addicted to shopping?
  • Are you earning enough? Do you need additional income to balance your expenses with your income?

Some very successful and intelligent people lack the skills needed for creating reasonable monthly expense budgets and sticking to the same. If you believe you are one of them, do not be shy. Go ahead and download expense management apps, online wallet maintenance apps or ask for professional help with Debt  management.

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