Personal loans are an excellent option if you need to borrow a small sum or are looking for a way to refinance debt. These types of loans are installment loans, which means you will pay the loan off in agree-upon payments. Making the same payment amount periodically, usually monthly, makes budgeting much easier. Even if you don't have perfect credit, a personal loan can be beneficial. Here are three ways personal loans can help with your finances.
They Allow You To Consolidate Credit Card Debt
The first way personal loans can help you with your finances is by allowing you to consolidate high-interest credit card debt. If you are overwhelmed by credit card payments, consolidating this debt using a personal loan may be an excellent option. First, consolidating this debt allows you to make one monthly payment instead of keeping up with multiple payments. Second, personal loans often have lower interest rates than many credit cards. The average interest rate is around 10.95 percent for a personal loan. If you are struggling to pay down high-interest credit card debts, a personal loan with a lower interest rate than your credit cards can help you pay down your debt quicker.
They Can Help With Unexpected Expenses
Unexpected expenses, such as medical bills or pricey home repairs, can leave your savings depleted. Large expenses that you haven't planned for can also throw your finances into disarray. Personal loans can be used for anything, including bills you weren't planning on. If you don't want to dip into your savings or emergency fund to pay a bill, a personal loan may be the best option for your needs.
They Can Improve Your Credit Score
Another way a personal loan can help is by eventually increasing your credit score. If you have a poor credit score, obtaining other installment loans, such as a mortgage, can be challenging. Since having a mix of credit accounts shows that you can manage different types of debt responsibly, it can improve your credit. Taking out and paying off a personal loan may eventually increase your credit score. If you don't have much credit history, a personal loan may also help you develop one.
If you are looking for a way to improve your finances, a personal loan may be able to help. First, a personal loan can help you consolidate high-interest debt. Second, personal loans can help you pay for unexpected expenses. Finally, taking out a personal loan and paying it off can improve your credit score over time.