Personal Loans and Debt Consolidation

[Jul 18, 2010.]

 

Americans are closing their wallets and holding onto their money as they remain concerned that the economy isn't recovering fast enough. Consumer sentiment numbers from Thomson Reuters/University of Michigan show that only 39% of consumers think their incomes are going to increase over the next 12 months. Also, 75% of consumers think that unemployment figures aren't going to improve over the next year, according to the Chicago Tribune.

Although spending had picked up some earlier in the year, many folks are becoming more thrifty as they prepare for potential tough times ahead. Paying down debt has taken on a new urgency for some people as they look for ways to ride out the troubled economy.

Being Thrifty and Using Loans

You, too, may be looking for ways to get rid of debt. Among the options you may be considering is a debt consolidation loan. But how does getting a loan fit into your attempts to be more thrifty and not over-consume?

Can a Loan Help?

Getting a personal loan is not the right solution for everyone. You must carefully evaluate your situation to determine if having a loan is going to aid your debt reduction plans or derail them. Consider the following when deciding whether a debt loan could help:

—Debt consolidation only works if you pay off bills and avoid running up new debt. Do not borrow money just to buy more stuff. A debt consolidation loan should be used to combine bills so you can pay them off faster.

—Pay attention to loan interest rates. A consolidation loan should help you reduce the overall amount of interest paid. Look for fixed-rate loans so your monthly payments won't increase.

—The lower your credit score, the higher the rate of interest you pay on a loan. But because personal loan rates are usually lower than what you'd pay on a credit card, using a consolidation loan could be a good move to wipe out high-interest bills.

—Close out existing credit cards and other loan accounts so you won't be tempted by open credit lines. Paying off debt with a consolidation loan should help improve your credit history in the long run.

Debt Reduction Planning

Borrowing money should never be the first choice when trying to pay off debt. Budgeting and cutting back on spending should be the key components of your debt reduction plan. However, if you're living the frugal life and still need help paying off debt, a debt consolidation loan might be able to help. Search carefully for a personal loan that meets your needs.

 

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.