Personal loans are a very handy financial tool. They are used for a wide variety of reasons including to pay for vacations, emergencies, and home improvements. One less common use is debt consolidation.
Debt consolidation is replacing old debt with new debt.
Trade Higher Interest Debt for Lower
If you can replace a higher interest debt, such as that from a credit card, with lower interest debt, like that from a personal loan, they could end up paying less overall.
Personal Loans Have a Payoff Date, Credit Cards Do Not
Credit cards can be spent up and paid down at the owner’s discretion. Personal loans have a set start and end date. Too often people spend credit cards up to a point where they’re only able to make the minimum payment. This is like bailing out a sinking boat with a hole in the bottom- it’s hard to make much progress. Swapping credit card debt with personal loan debt can put an expiration date on your debt.
Bottom Line
If your objective is to consolidate and eliminate some pesky debt, consider a personal loan.
