There are two types of personal loans that you can apply for. You can try to get an unsecured or secured personal loan.
With a secured personal loan, you must put up collateral to be considered. Collateral can be a car or a house. The items that you put up for collateral will be taken away from you if you can’t make the payments.
With an unsecured personal loan, you don’t have to put up collateral. These types of loans are much more common. If you’re unable to make payments, you may be subject to fines, or the creditor may take you to civil court.
Another advantage of getting a personal loan is that you can get fixed terms. This means that you’ll pay a specific amount of interest for a specified amount of years. The shorter the personal loan is means that you’ll pay lower interest throughout the term of the loan. While this is an advantage, it can also be a disadvantage because you’ll have higher monthly payments if your loan is for a long period of time.
If you’re looking to get a personal loan to consolidate credit and if you pay off all of your credit cards, it’ll be easier for you to pay your debt because you’ll only have one monthly payment to pay instead of several.
You may be able to reduce your monthly payment on personal loans if you’re using them to consolidate credit cards. If your interest rate is lower on your personal loan compared to your credit card, you’ll be saving some money, and it should reduce your monthly payments. This means that you’ll have more money in your pocket to pay down your debt faster.
Personal loans are good for building credit if you make your payments when they’re due. If you pay off all of your credit cards or you pay them down with your personal loan, you’ll be reducing your credit utilization score, which will look good on your credit report as well.
The biggest disadvantage of using personal loans is that you’ll still be in debt, and this most likely means that you’ll be able to save less money compared to if you weren’t in debt. Using a personal loan to consolidate credit card debt may be a disadvantage because you may be tempted to add a balance back on the credit card.
Another disadvantage is that you may have higher monthly payments. This always depends on the interest rate, loan length and how much your borrow. With a credit card, you’re able to make the minimum payments each month. With a personal loan, you must make the full payment every month. If you don’t, it’ll destroy your credit.
Using a personal loan to consolidate credit card debt may not be worth your while. Some credit cards have promotional offers that offer minimal interest for a specified time period. If you pay off your debt during this time, you may save more money compared to getting a personal loan.