How and When to Use a Personal Loan to Pay Off Debt
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Personal loans are one of the best options for paying off debt. But first, you’ll need to secure a personal loan to pay off debt. So how do you do that? With a variety of lenders that offer personal loans for paying off debt, you should have plenty of options available. While you want to make sure to get the best deal, you don’t want to submit multiple applications to multiple lenders. Since not everyone will qualify for a lender’s advertised rates how do you narrow down lenders with the best offer for you? The answer is simple – Acorn Finance. Keep reading to learn more about using a personal loan to pay off debt.
What are personal loans?
Most personal loans are unsecured term loans that can be used for just about anything from paying off debt to financing a wedding. A term loan is usually issued as a lump sum and has a fixed-duration for repayment, fixed loan amount, and a fixed interest rate. This means that borrowers have consistent monthly payments that never change. This is just one reason why personal loans are easy to manage. Also, unsecured personal loans do not require collateral. This makes them less risky for the borrower but riskier for the lender. Since there is more risk for the lender, unsecured personal loans may have slightly higher interest rates than secured loans. However, the higher interest rate can be justified by the reduced risk. Some lenders may offer personal loans specifically for paying off debt. These lenders may offer direct payment to creditors which can simplify the process for you. The overall idea of using a personal loan for paying off debt is that you can combine multiple forms of debt into one loan and one monthly payment. Acorn Finance has lending partners that offer personal loans up to $100,000 and can work with all credit types.
Is it a good idea to take out a personal loan to pay off debt?
If you have multiple debts with what feels like, never-ending balances, you should seriously consider using a personal loan to pay off debt. Paying off debt and improving your credit score is always a good idea. Before applying for a personal loan, you should add up the debts you want to consolidate. Once you have added up the total amount of debt, you should estimate a monthly payment. Most personal loans have origination fees that can range from 1% to 3% of the total loan amount. You should consider this when estimating payments. If you are unable to afford the payment you estimate, you may want to contact your current credit card companies or lenders. You can explain to them that you are having trouble paying off debts or making payments. Some of them may be willing to dismiss some of the money you owe them.
Also, borrowers should invest time reviewing statements and spending habits. Identifying how you got into debt is an important part of getting out of debt and staying out of debt. If you use a personal loan to pay off debt and then continue to execute old spending habits, the cycle can easily repeat itself.
What is the best loan to pay off debt?
Personal loans or debt consolidation loans are some of the best loans to use for paying off debt. Personal loans and debt consolidation loans are almost the same thing. However, lenders that specifically offer debt consolidation loans may be more likely to offer direct payment to creditors. Acorn Finance has lending partners that can provide personal loans for debt consolidation.
What happens if you can’t pay a personal loan?
If you can’t pay a personal loan or any other type of unsecured loan, you may damage your credit. If you miss a payment or two you may be charged a late fee. However, if you miss several payments in a row there’s a good chance the creditor will send the account to collections. In most cases, accounts that are in collections show up on your credit report. Most lenders that see borrowers with accounts in collections hesitate to approve new loan requests. Having accounts go into collections can be the beginning of a downhill spiral. If you have more debt than you can repay, you may need to consider filing bankruptcy. For customized financial advice we recommend consulting a professional.
Do personal loans hurt your credit?
Anytime you apply for credit or take on new debt, you may see a temporary decrease in your credit score. However, if you make on-time payments you should see your credit score increase with a little bit of time. To help improve your credit even more, you should pay more than the minimum monthly payment. Paying as little as 10% extra each month can help boost your credit score while saving you money on interest. If you are considering a personal loan to pay off debt, you probably have a high debt-to-income ratio. A high debt-to-income ratio can severely impact credit and lending decisions. Taking steps toward improving your debt-to-income ratio is a smart financial decision.
Is it better to get a personal loan or debt consolidation?
Debt consolidation is just one of the many uses of a personal loan. There is no difference between a personal loan and a debt consolidation loan.
The Dos and Don’ts of Personal Loan Debt Payoffs
When it comes to using a personal loan to pay off debt, you’ll want to make educated financial decisions. Here are some of the dos and don’ts of using a personal loan to pay off debt. . .
DO try to lower your interest rate
The goal of consolidating debt is to save money on interest and make finances more manageable. If you can accomplish these two things, you should be on the right track for a debt-free lifestyle. While having one fixed monthly payment may be attractive enough, don’t forget to pay attention to the terms. The personal loan you use to consolidate debt should have a lower interest rate than existing debts that will be transferred. To find the lowest rate possible you should apply through Acorn Finance. Acorn Finance allows individuals to submit one application and receive multiple personalized personal loan offers within seconds without affecting their credit score.
DON’T add more debt after your personal loan
Best Egg can help fair credit borrowers obtain personal loans for debt consolidation. To qualify for a Best Egg personal loan you should have a minimum credit score of 640. Best Egg offers personal loans between $2,000 to $35,000 with two repayment term options, 3 or 5 years. Since they are willing to approve loans with more risk, they do charge origination and late fees. Compared to other lenders that target similar borrowers, their offers are very comparable. Reviews highlight Best Egg’s transparent offers and terms and excellent customer service. In addition, Best Egg offers financial education for borrowers. Best Egg can deliver funds in one business day and is an Acorn Finance lending partner.
DO calculate your budget and monthly payments
Knowing what you can afford is essential for successfully paying off debt. For example, let’s say you have $15,000 of debt that you want to consolidate into one personal loan. If you are pre-qualified for a $15,000 personal loan with 8.99% interest and a 5-year term, your payments should be about $315 per month. If you cannot afford this payment you should reconsider the personal loan. In some cases, you may be able to communicate with the lender and get a longer personal loan term. Using this same example but with a 7-year term, your payment would be about $245 per month. Making sure you can cover the monthly payment for the personal loan is extremely important.
DON’T try to juggle too many loan accounts at once
Trying to juggle several loan accounts can be overwhelming and time-consuming. Consolidating debt may take some time. If you can create a financially doable repayment plan, it’s okay to take longer to pay off debt. Taking action toward paying off debt is better than ignoring it and letting interest accumulate. However, if you have several loan accounts and types of debt, you may want to choose a few loan accounts to start with. For example, you could use a personal loan to pay off credit card debts. Once you have repaid this personal loan you could use another personal loan to pay off student loan debt and so forth.
DO stay on schedule and make full payments on your loan
If you use a personal loan to consolidate debt, you need to make on-time payments. Most personal loans have a minimum payment requirement. However, if you can pay more than the minimum each month you can pay the loan off faster while saving on interest. If the personal loan lender does not have an early pay off penalty, you can pay the loan off early without any penalty. Paying off a personal loan on time or early can significantly boost your credit score. We highly recommend setting up automatic monthly payments for your personal loan. Some lenders may offer a discount for enrolling in automatic monthly payments.
In conclusion, personal loans usually have lower interest rates than credit cards, making them one of the best options for consolidating debt. Also, most personal loans have a fixed monthly payment that can simplify budgeting. Acorn Finance has top-rated lending partners that offer personal loans up to $100,000 with terms up to 12 years and interest rates as low as 3.99%. You can submit one application and receive multiple personalized personal loan offers within minutes. Your credit will not be affected by submitting the pre-qualification application. Whether you are just shopping for the best personal loan offer or ready to secure a personal loan you should apply at Acorn Finance.
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