Personal Loan Can Help Consolidate Debt

[Apr 30, 2010.]

 

A personal loan could help you consolidate debt. Combining multiple debts into one loan could allow you to lower the amount of interest paid and set up a more manageable monthly payment. Consider the following to determine if a consolidation loan can help your situation.

Can a Loan Really Help?

Borrowing money shouldn't be the first step in trying to wipe out debt. Have you ever used a budget to track your spending? Do you make a lot of impulse purchases with credit cards without thinking through the consequences? Are you always confused about where your money goes?

Unless you admit you need to change your behavior, getting a loan may only temporarily stop the financial bleeding. Depending upon how out of control your spending is, you may need to see a debt counselor.

Making the Case for a Loan

On the other hand, getting a loan could be a savvy move if you have a strategic plan to tackle debt. A consolidation loan could help if:

—You regularly make payments on debt, but would be helped by reducing the overall amount of interest paid.

—You don't want to juggle monthly payments to multiple creditors.

—You want to negotiate a debt settlement, but don't have enough cash on hand for a lump sum payoff.

Loans Are Hard to Get

It's gotten much tougher to qualify for loans as the economy has struggled. Even people with good credit are having a tough time getting loans. If you have really bad credit, it's unlikely that most lenders are going to take a chance on approving a loan. Any lenders who are willing to loan you money are going to do so at a very high interest rate.

Clean Up Credit

If you have bad credit, but really think a personal loan could help with managing debt, cleaning up your credit is going to be crucial. Get a copy of your credit report to review the situation and see which areas need to be fixed. You should do this anyway, regardless of whether you get a consolidation loan.

A Loan Might Not Be Enough

Yes, a loan could help consolidate debt. But getting a personal loan won't solve all your financial problems. You may find that even though you've cut back spending as much as possible, asked for and received lower interest rates on credit cards, or negotiated debt settlements, you still may not have enough income to cover debt payments. At that point, you may need to consider other options such as getting a second job or downsizing to a less expensive home.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.