Debt has a sneaky way of spiraling out of control, and more quickly than you’d ever expect. Mess up once or twice with a payment or lose a job, and that’s all it takes for debt to multiply. It may be that you get another job quickly, or that you recover from your missed payments and smooth things out. The problem is, creditors use heavy-handed tactics to punish you when you’ve messed up, and the mistakes can follow you for years. Banks are in the habit of raising interest rates and charging large late fees when you miss your payments, which can have you peddling backwards. The following are some tips for using a personal loan to help you eliminate your debts.
Using a Personal Loan to Bring Debt Under Control
Having multiple credit cards means having multiple bills to pay every month. It’s stressful, and it adds to the struggle of keeping all the balls in the air, hoping you won’t miss when it comes time to catch one. A personal loan puts a stop to the multiple payments by bringing all of the loans under one umbrella. However, be sure to investigate the loan thoroughly before signing on the dotted line.
The Difference Between a Credit Card and Personal Loan
Personal loans tend to be single-payment, fixed interest rate instruments. That means you make the same payment every month, and the interest on the principal balance recalculates each month so you’re paying off more principal and less interest — whereas a credit card may have a variable interest rate that fluctuates when the Federal Reserve changes the base rate it charges banks.
Therefore, One advantage to a personal loan for debt consolidation is the elimination of a variable interest rate. The payments for a personal loan are usually predictable and terminate on a specific date. Take a look at a personal loan from Avant for an idea of how you can better use your money to pay off debts.
The Long-Term Benefits of a Personal Loan
Credit cards can take the better part of a decade to pay off, especially if the interest rates are high and you can’t afford to pay more than the minimum payment toward the balance. This is even more true if you have multiple cards.
A personal loan has the potential to take all of those payments and turn them into one. Now you have one payment instead of four or five to keep track of, a debt that retires on a specific date, and maybe a little more money left over for savings. Make sure to clamp down on spending habits and put those now-empty credit cards into a drawer. The worst thing you can do to yourself is continue to use the cards to create new balances.
Using a debt consolidation loan can be part of a smart personal financial plan. Don’t cut up your cards, but do put them away, and don’t use them unless there’s an emergency. Save money from every paycheck, and put it into a retirement or a savings account, then forget the money is there. It’s slow going, but you’ll find that you’ll prefer having cash on hand as opposed to debt on a credit card in the long run.