Are Personal Loans Worth It? Is There Such Thing As Good Debt?
Personal loans could be a viable option for many circumstances. However, a personal loan can be both bad debt and good debt, depending on the size of the loan. These loans can help your credit rating if you use them correctly. So, ‘Are personal loans worth it?’ This is a complex question, and the answer will depend on what you are planning to use the money for. Here are just a few circumstances when getting a personal loan could be a good idea.
Refinance Student Loans
Refinancing your student loan could reduce the amount of financial stress that you are under. The interest on a student loan can be 6 percent or even higher. There are personal loans that have interest rates that are lower and higher than your student loan. You should compare the market to find out if there are better rates available for you.
It should be noted that student loans have tax advantages. Law makers are also looking to improve student loan forgiveness programs in the future, so you would not be eligible for the tax breaks.
Consolidate Your Credits Cards
Credits cards are a great option to have for unexpected expenses, but having them charged to the max makes them unusable. A personal loan could help you pay off your credits cards while reducing the payments down to only one payment. Personal loans also have lower interest rates, compared to the annual interest rates and fees of many credit cards.
Improve Your Credit Rating
Personal loans can help your credit rating and score in two ways. The first way is that adding a personal loan to your credit report could improve your account mixture, especially if you have a lot of credit card debt. Most of the time, having different loan types on your credit report can improve your score.
The second way is that a personal loan could lower your credit utilization ratio. This ratio is the total amount of credit you used compared to your credit limit. The lower total credits in use, the better the score. A personal loan increases the amount of credit that you have available.
Financing a Purchase
This will depend on the item and the amount of money that is needed. If you need to take out a loan or use a credit card to buy a needed item, getting a personal loan and paying for the item in cash could be a better option than using the seller’s financing. You should never make the decision about how to finance an item on the spot. You should ask for more details about their financing options, and compare the rates to personal loan options. Only then should you make the decision about how you are going to pay for the item. You may be surprised to see just how bad in-store financing can be.
Personal loans are very useful at times. However, they could negatively affect your credit rating if not used properly. You need to be careful when you are thinking about getting a personal loan since you should try to keep your credit score as high as possible.