It makes the most financial sense to stay out of debt as much as possible. Some forms are unavoidable for most people, such as a mortgage, an auto or student loans. However, outside of these exceptions, there might seem to be little reason to accumulate additional debt. In fact, there are times when taking out a personal loan can be the smartest thing you can do for your finances.
What is a Personal Loan?
A personal loan are funds you can acquire from a credit union, bank, or an online lender. The approval process will typically involve a credit check, income verification, and a general risk assessment. The lender will determine how much you can borrow and what the terms of repayment are. These are typically uncollateralized loans with fixed interested rates. Unlike mortgages and student loans, a personal loan is often times a much quicker approval process.
Debt Consolidation
If you have a number of different credit card bills or other debts with high interest rates, you may be better off taking out a personal loan to pay them all off. Multiple debts with different minimum payments, interest rates and due dates can be overwhelming, and consolidating make it easier to start paying down the balance. Lower interest rates mean you spend less money and can pay off faster. Even if you have just a single account, if the interest rate is high, it might be worth looking into a personal loan.
Emergency Expenses
This could include sudden medical issues or having to replace a major appliance, such as a stove or a refrigerator. Ideally, you’d have an emergency savings fund. However, not everyone is able to put away enough reserves, or you might be in the process of building one when the emergency hits. You can also run into expenses that are much higher than what you have saved thus far. Many people reach for their credit cards in this situation, but the problem is that those often come with high interest rates. You may be better off seeking a personal loan from Earnest.com. At the very least, you should look into your options and whether you qualify.
Remodeling Your Home
A home remodel can be expensive, so the first question to ask yourself if you are considering one is whether you can afford it. It may be best to save money toward the remodel rather than borrowing to finance the upgrades. However, in some cases, the remodel could be essential. You might need a new roof, or some part of your home may simply be unworkable with your family’s lifestyle. A home equity line of credit is one possibility, but it means putting your house up as collateral with an additional lien. It is worth comparing the terms with all financial options in order to see what the best alternative to using credit is, while minimizing the amount of interest you pay over time.