Juggling Multiple Debts? Here’s How a Personal Loan Can Help

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It’s an option worth considering. 

There’s a reason U.S. personal loan balances reached a whopping $222 billion as of the fourth quarter of 2022, according to TransUnion. Personal loans can be an extremely convenient, cost-effective means of borrowing money when you need to.

When you take out a mortgage, for example, you can only use that loan to finance the purchase of a home. With a personal loan, you can use your loan proceeds for anything, whether it’s to renovate your kitchen, fix up an ailing car, or cover a series of medical bills you were recently hit with.

A personal loan could also be a great way to consolidate existing debt. And so if you’re juggling multiple loans or credit card balances, it pays to consider one.

Make your life easier

Perhaps you’re carrying three different balances on three different credit cards, each with its own monthly due date. That’s not an easy situation to manage. You might end up forgetting to make a payment one month, thereby damaging your credit score in the process.

The upside of taking out a personal loan and using it to consolidate existing debt is that you’ll go from juggling multiple monthly payments to only having to make one. That lowers your chance of losing track of your payments and damaging your credit score in the process.

Make your debt less expensive

Another benefit of consolidating your existing debt into a personal loan? You might make it less costly to repay over time.

Let’s say you owe $10,000 across three different credit cards charging you 16% to 20% interest. If you have good credit, you might manage to qualify for a $10,000 personal loan at 7% interest. That’s a much lower interest rate than what you’re paying at present. Because of that, you’ll spend less money in the course of repaying your debt.

Another thing to keep in mind is that credit card interest can be variable, so the rate you’re paying on a balance today might rise over time. With a personal loan, you get to lock in a fixed interest rate on your loan. If that rate is 7%, you won’t have to pay 8% or 9% down the line — that 7% will remain in effect until your balance is whittled down to $0. That eliminates a lot of stress and makes your payments easier to fit into your budget.

Should you take out a personal loan to consolidate debt?

You don’t necessarily want to take out a personal loan to pay for a vacation or upgrade your electronics. Those are things you should save for ahead of time instead.

But if you already have outstanding debts you’re having a difficult time managing, then it could pay to apply for a personal loan and use it as a means of consolidation. This especially holds true if your credit score is in good shape, because the higher that number, the more likely you’ll be to snag a competitive interest rate on a personal loan.

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