Getting a Personal Loan to Pay off Debt

Information on Getting a Personal Loan to Pay off Debt

Although getting a personal loan to pay off debt is not advisable, it can still be done if it is your last resort. In a way, this is actually beneficial when you have two or more debts at hand. However, this is a bit risky especially if you have uncontrolled debt problems. To give you a better view, this article would discuss to you the mechanics of paying your debts through personal loans. In addition to that, you would also distinguish its positive and negative effects to consumers.

Loan consolidation

Basically, when you get a personal loan in order to pay your credits; it is simply termed as loan consolidation. In a positive point of view, this is good since instead of making several payments monthly, you will only going to be making one payment. However, this can only be remarkable and applicable if you have a good credit score. This is because with a good credit score, you get a lower interest rate. Although, this year’s average APR for credible loan applicants is 17.3% interest rate, you can still find some banks that offer 5.9% to 6% interest rate. Furthermore, personal loans are unsecured loan with a fixed payment within a period of time. Thus, if you have a bad credit score, you either get a high interest rate or your loan will not be approved.

One of the risks of loan consolidation is when you continue using your credit cards. This will only increase your current debts and result to the vicious loan cycle. Keep in mind that your personal loan would already consume most of your paychecks. With continuous use of credit cards, you’ll only worsen your financial state. Thus, getting a personal loan to pay off debt will only work efficiently if you close all your credit card accounts and reduce your monthly expenses.

How to apply for a personal loan to pay off your debt?

Applying for a personal loan to pay off your debts is simple. However, you have to do a massive research to find the lowest possible interest rate which is quite tedious but truly worth the effort. With that being said here are the steps for loan consolidation to pay off debt.

  • The first step in apply for a personal loan is to inquire at various banks and credit unions regarding their loan qualifications and interest rates. Typically for eligibility, your financial situation for the past 6 years would be reviewed. Any missed or delayed payment would affect your approval rating.
  • After you’ve found the lender suitable for you, your next move is to gather all essential documents. You need to present all documentations of credit card accounts or debts that you would like to consolidate. You also need to present proof of your current income and income tax return. Lastly, you also need to provide identification such as driver’s license and social security card.
  • The final step is the application process. Once all documents are submitted, approval process would be done within 24 hours. If approved, the lender would directly pay the credit company which you can verify after 1 to 2 weeks. And that completes the topic on getting a personal loan to pay off debt.