Personal Loans and Debt Consolidation

[Oct 17, 2009.]

 

Using a personal loan for debt consolidation can lower overall interest, reducing the total amount owed on debt. Borrowers who want to combine several debts should keep a few things in mind as they work on a debt reduction plan.

Personal Loans Are Not Free Money

When a borrower takes out a loan, she is agreeing to eventually pay it back. So, it is best to avoid applying for a personal loan if she knows she really does not have the income to make the monthly payments. However, borrowers with a regular income stream may benefit from using a loan if they have a realistic plan to pay off the debt.

Personal Loans and Budgets

It is important to put together a workable budget and debt reduction plan even before applying for a personal loan. Working on a budget should help borrowers accomplish two things: 1) Cut unnecessary expenses, which frees up more money to put toward the debt, and 2) Prioritize which debts should be paid off first, and which debts can wait a little longer.

What Is the Cost of Getting a Loan?

People who decide to get a loan  need to look at the true cost of borrowing money for debt consolidation. The goal should be to pay off debt as quickly a possible, in order to keep down the amount of interest paid out over time. Even if a borrower gets a loan that does not have to be paid back for five years, she should work to pay it off much sooner. In addition to looking at the interest rate, it is important to understand any fees involved with borrowing money.

Stop Using Credit Cards

Of course, one of the keys to getting out of debt is to stop using credit cards. After a borrower has received a personal loan for debt consolidation, she should get rid of her credit cards, which completely eliminates the temptation to use them again. Financial guru Dave Ramsey even suggests borrowers do a "plastectomy" and cut up their cards, essentially going cold turkey on using credit.

Getting a debt loan is not the solution for everyone. But it can be a useful tool for people who are serious about consolidating bills and getting off the debt treadmill once and for all. Search our network of reputable lenders to see if a personal loan can help with a debt reduction plan.

 

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.