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How to Use a Personal Loan to Smooth Out a Period of Unemployment

[Jul 16, 2009.]

 

Despite the decrease in new claims, unemployment remains at a 26 year high. Underemployment, which includes people who are working part-time or have given up searching for work, is not as closely measured but just as important to the people experiencing less income as a result of the languishing economy.

In times like these, a personal loan may seem like a solution. And a personal loan can be that solution. But misuse of a personal loan during a period of unemployment can also be financially problematic.

Here are three tips for using a personal loan to smooth out a period of unemployment:

1. Cut Costs Before Borrowing

The American consumer has had better days. Unfortunately, many consumers are still living in that better days reality. Before taking out a personal loan, it's best to acclimate to this new reality.

In other words, cut unnecessary expenses. Ways to cut expenses include forgoing the trip to Starbucks, driving less, and price-checking recurring costs like insurance and cell phone bills.

Do all of that and more to reduce expenses before taking out a personal loan. Besides the opportunity to save real dollars, the exercise of looking hard at expenses entails getting into a different mindset.

Namely, the mindset necessary to make good use of a personal loan.

2. Choose the Right Repayment Plan

Fixed rate personal loans with regular repayment dates are probably the cheapest of personal loan options. However, these attractive products are sometimes limited to consumers with good or at least fair credit. Personal loans with bad credit sometimes have other repayment arrangements, such as balloon payments.

There is nothing inherently wrong with these alternative repayment plans, but be careful. This period of unemployment may end soon, allowing full repayment of the loan. But it may last longer than expected.

Use conservatism when agreeing to a repayment plan. Personal loans gone bad can be fixed, but it's much preferable to make an agreement and stick to it.

3. Network for Work

The great majority of jobs, especially in a rough job market, are gotten through networking. Unemployed people, then, must be vigilant if not outright aggressive in using contacts to pursue work. The number one best way to use a personal loan when unemployed is to become un-unemployed ASAP.

Nowadays, networking can mean not only in-person schmoozing, but working the social networks like LinkedIn and Facebook to see what's out there. Check out this interesting video on how to use social networking to generate job leads.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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