Personal loans are one of the options available for debt reduction. They can be obtained to consolidate existing debt into one monthly payment and thus make payments to a variety of creditors more manageable. When considering using a personal loan for debt consolidation you should consider if a secured or unsecured loan is most suited to your situation.
Secured loans require collateral as security against the loan. The lender may require your home as collateral which can put your home at risk if you fail to make the payments. Turning unsecured debt such as credit card debt, into secured debt, is not recommended. However secured loans come with lower interest rates than unsecured loans.
Unsecured personal loans carry higher interest rates but require no collateral. They are less risky than secured loans. It is important to check originating fees on personal loans and to be aware of any penalty clauses. Many loans come with penalties if you attempt to pay them off early. With tighter lending criteria being imposed by banks it may not be possible to obtain a personal loan, and the interest rates levied will be based on credit scores. The headline advertised interest rate may not be the one you are offered.
Using personal loans for debt consolidation can work but only if the borrower ceases to rack up further debt. One common problem is that as all the current debts are covered by one monthly payment with no pressure to repay it earlier than the specified term, new debts are often run up on credit cards which have been paid down by the loan. Many find that they have accrued more debt if they fail to curtail spending.
Whilst personal loans are one option for eliminating debt, they tend to be more expensive than opting for a low APR balance transfer card. The advantages of balance transfers over loans is the interest rates are lower and as there is a set period before the low APR expires, borrowers can prioritise paying off the debt. With loans which may stretch over longer periods the total repaid is much more than the amount borrowed, and the option of longer terms make them even more expensive.
Personal loans abound on the internet and are also available for those with bad credit. Be wary of high interest rate personal online loans which companies offer to find for you: most likely they are obtaining loans from sub prime lenders at unfavorable terms. Always remember that the longer the term of the loan the more you repay in the end. This can be convenient for anyone struggling to meet a high monthly payment which will be reduced with a longer term.
If you are looking for a way to eliminate debt then personal loans are one option to consider. The rates and terms should be compared between unsecured personal loans and offers on balance transfer cards to see which represent the best deal for your circumstances.