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Personal Loans

Personal loans have become quite popular and can also be an option for consolidating higher interest debt. Depending on your situation, a personal loan may be an effective way to wrap multiple higher-interest debts into one loan with one monthly payment at a fixed, lower rate of interest.

Pros

Potentially no closing costs

Most lenders will cover any upfront fees and closing costs on a personal loan.

Fixed, and possibly lower, interest rates

Credit cards and other unsecured debt generally come with variable interest rates, which could be 30% or more. Most personal loans will allow you to lock in an interest rate that is fixed for the life of the loan. A credit score of 740 or higher may qualify you for the best terms on your personal loan, which could lead to a lower interest rate than your credit cards carry.

Single loan payment

Consolidating several accounts into one loan with one monthly payment can create clarity and powerful motivation to tackle your debt paydown plan so you can concentrate on reducing other expenses and focus all your efforts on getting out of debt.

Easy and quick loan processing and funding

Applications for personal loans generally require minimal paperwork and are processed quickly. Banks such as SoFi, Citi and others advertise funding within days of initial application for approved loans.

Cons

Higher interest rates than HELOC or HEL with shorter payback periods

Interest rates may be slightly higher than a HELOC or a HEL and payback periods shorter, meaning it may not be as effective a choice if getting the lowest interest rate and lower monthly payments are your priorities.

Potential for more debt

Paying off consumer debt with a personal loan frees up credit on the paid off accounts. To reduce this risk, build a budget first and make sure you are resolved to not make any new purchases on credit until your consumer debt, including the personal loan, is completely paid off.


Shopping for a personal loan

Most personal loans range from $5,000 to $100,000 and are amortized over one to eight years. Interest rates can range from single to double digits. Interest rates, payback periods, fees, and application processing and funding times can vary widely by lender. It can pay to shop around. Several lenders will allow you to check what interest rate and repayment terms you could qualify for without affecting your credit. You can use sites such as NerdWallet or Forbes and others to compare requirements and terms.