Even if you’re very careful with money, you still might find yourself in a situation where you’re don’t have enough to cover your expenses. Maybe you were injured that month, or the car broke down and you had to shell out a ton of money to fix it.
Sometimes, taking out a personal loan is your best option for getting you through those hard times.
However, there are good ways and bad ways to use a personal loan. Using it to finance things like lavish spending sprees or other luxuries is a good way to dig yourself into more debt.
When used correctly, though, they’re a great asset to have. Here are three smart ways to make use of personal loans.
1. Debt Consolidation
Paying tons of differently monthly payments on your debt is overwhelming. It’s also expensive if you’re paying lots of different lenders, chances are each one is also charging you a high-interest rate.
Consolidating your debt means you can make one monthly payment with one interest rate, which can grant you peace of mind. If you shop around, you might even be able to lower both your monthly payment and your interest rate.
Personal loans can help you do this. When you apply for a personal loan, just select ‘debt consolidation’ as your reason for applying.
2. Renovating a Home
Most people think of mortgage payments when they think of home-related loans, but personal loans can be used for renovations. Since this will end up increasing the value of your home, and in turn increasing your equity, it’s a good reason to take on debt.
Make sure that you only take out what you’re sure you can pay back, so you shouldn’t use this as an opportunity to schedule renovations you can’t afford. Remember that these are loans, not grants.
3. Avoiding High-Interest Credit Cards
Finally, in situations where there’s no way to avoid spending more than what you can afford, such as emergency situations or unforeseen circumstances, a personal loan can help you avoid high-interest credit cards.
Let’s say that you need to charge a $4,000 hospital bill to your credit card. However, if your credit card has a 24 percent interest rate, the actual amount that you end up paying will be much higher.
If you take out a personal loan, however, you can pay off the credit card balance immediately and then pay back the lender at a lower interest rate. If the interest rate on your personal loan is 14 percent, you’ll end up saving a significant amount of money.
Make the Most of Taking Out a Personal Loan
No one wants to be in debt. Sometimes, though, taking out a personal loan is the smartest decision for your financial situation. These three potential uses will help you make decisions that will set you up for future success instead of getting you into further debt.
You don’t have to be worried about money – you can take control of your future financial health.
Visit our learning center to learn more about the best ways to manage your personal finances.