Today, eight in 10 Americans are in debt, according to a report by the Pew Charitable Trust. The debt you owe can come from a variety of loans, like mortgage or car loans or various credit card bills. You may feel overwhelmed and stressed trying to pay each of those bills on time every month.
If you feel like you’re in over your head when it comes to managing your debt, maybe it’s time to consider applying for a personal loan to consolidate that debt. Here are a few reasons why consolidating your debt with a personal loan is the best option for you and your finances.
Lower Interest Rates
High interest rates are one of the main contributing factors that force people to stay in debt longer than they should. Applying for a personal loan can potentially lower the interest rates you are paying on all of your debts. For example, if you have two credit card bills each month that charge 15 percent and 12 percent interest respectively, but your personal loan only charges you 10 percent, you can save money by only being required to pay the loan’s interest rate.
By applying for an unsecured personal loan, you could secure a lower interest rate without having to put your home or car as collateral.
Easier to Manage
Consolidating your debt means that you will now only be responsible for one monthly bill, one due date, and one interest rate to keep track of.
For people who find it difficult or stressful to manage their various bills or interest rates, a personal loan provides a simple solution. Once you merge your debt, you can focus all of your energy on that single payment each month.
Reduced Monthly Payment
By securing a personal loan to consolidate debt, you might be able to cut the total monthly payments for your debts. Depending on how you structure your loan, you could set up a lower monthly payment for all of your consolidated debt.
Let’s say you have a monthly payment of $700 for your credit card, but your personal loan payment is only $550, you would then be able to cut your monthly payment by $150 which you can apply to your loan’s principle balance or to other expenses you might have.
Lenders offering debt consolidation loans include Prosper and LendingClub. If you have fair credit and want a competitive option.
Improve or Build Your Credit Score
Adding a personal loan with realistic payments you know you can make will help build your credit score. A personal loan to combine debt can also improve your credit score by allowing you to lower credit card balances, thus lowering your use ratio on your credit report.
Having and maintaining a good credit score is more important than ever as more and more things rely on a good credit score, like securing cell phone service.
If you’re tired of feeling like you are drowning in debt and want to take control of your finances, consider consolidating your debt. Combining your debt with a loan can lower the interest rates on the money you owe, make your debt easier to manage with only one monthly payment, cut your monthly payment, and improve or build your credit score.