5 Best Ways to Use a Personal Loan
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Personal loans can be helpful in many situations, but they aren’t a solution to everything. Here a few situations where a personal loan makes sense. Enjoy!
We all know that an emergency fund savings account can help you get through tough times. But it’s not always possible to maintain a robust emergency fund. In those times, a personal loan can be another strategy for making ends meet.
You can use a personal loan for a wide variety of expenses. Most are flexible in nature, making them a logical choice. However, it’s important to consider how to best use these loans. Here are a few good reasons to consider one.
Consolidating High-Interest Credit Card Debt
One of the best ways to use a personal loan is to consolidate high-interest credit card debt.
Paying off credit card debt is an important step in reaching financial freedom. It’s always a good idea to get rid of any credit card debt as soon as possible, and a personal loan might be a helpful part of your journey to reach that goal.
The interest rates on credit cards can be astronomical. These high rates, which sometimes creep past 20%, make it extremely difficult for consumers to escape the cycle of debt. If you’re only able to make the minimum required payments, you’ll pay a lot of extra money in interest charges, and it’ll take forever to pay the debt in full.
So if you have thousands of dollars charged on credit cards, you could benefit from taking out a personal loan that consolidates your debt and offers a much lower interest rate. Doing so could potentially save you thousands of dollars in interest compared to paying each card individually.
These loans often come with a fixed monthly payment, which simplifies your monthly bills and gets you on the right track to pay it off for good. Just remember to use a personal loan wisely — not to rack up even more debt!
It’s tough to fully prepare for medical expenses. Even with insurance and an emergency fund, major medical costs such as hospital stays and emergency-room care can decimate your finances.
You can’t predict when a health problem will arise or how expensive it will be. Even if you have insurance, not all procedures and medications are fully covered. Plus, your emergency fund might not contain enough money to cover a major health episode. Sometimes you simply can’t handle the up-front expenses of an unexpected medical issue.
The last thing you want to worry about when you or a loved one is facing a sudden, devastating diagnosis is the cost of treatments. Taking out a personal loan can ease your financial stress and help you concentrate on what’s most important during this time.
As with emergency health issues, there are other areas of your life in which a personal loan can make a lot of sense. Anything can break — from your car to your home’s plumbing — and it’s often difficult to come up with the funds for emergency repairs.
If you’re a homeowner, you already know the importance of saving for routine maintenance and updates. It’s best to save up cash to pay for things you know will happen, such as the replacement of appliances or flooring. That normal wear-and-tear shouldn’t be surprising.
However, when an urgent situation comes up without warning, a personal loan may be necessary to pay for emergency home repairs. For example, our heat pump broke six months after moving into a new house — in the dead of winter — and that was a big expense. For sudden, emergency home repairs like this, a personal loan can make a lot of sense.
Ensuring your family has a safe place to live is essential, and a personal loan can ease the financial burden of fixing things that need to be taken care of right away.
An automobile is another asset that tends to require expensive repairs. Again, it’s ideal to keep money in a savings account for routine maintenance and repairs. And you should have an emergency fund set up for major, unforeseen expenses. But sometimes life just doesn’t work that way, and a personal loan can help you in the meantime.
Even a minor accident could be disastrous for your car, leaving you with thousands of dollars in repairs not covered by insurance. When you’re faced with a vehicle that you have to fix right away, and you don’t want to deal with the high interest rates of a credit card, a personal loan may be the best option.
Major Life Events
Let’s talk about major life events. Affairs such as weddings, funerals, and vacations can cost a pretty penny. It’s usually in your best interest to build a budget and save up for the big events whenever possible, but you could also consider a personal loan for certain major events.
Be cautious using personal loans for things such as weddings. It can be tempting to overspend when you’re taking out a loan because you don’t feel the pain of spending money in quite the same way as you do when paying in cash. And it’s never a good idea to go into major debt for something that’s not essential.
So make sure to set a budget for these events, even when getting a loan, and then don’t go above what you would normally spend on them. Before signing anything, calculate the total amount you’ll pay, including interest, and how long it will take to repay the loan.
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Deciding to Use a Personal Loan
When you get a personal loan, you have to remember it’s a form of debt, not a free gift. You still have to pay it all back, plus interest and sometimes fees. Whenever possible, aim to save ahead of time for both expected expenses and emergency ones.
While some companies will offer personal loans for luxury items such as vacations, it’s generally best to steer clear of personal loans for true luxuries. In fact, some lenders restrict how you can use a personal loan, so be sure to read all the details. Save up the money instead using a high-interest savings account. That way, you’ll actually earn interest instead of paying it.
But for those life occasions and emergencies when you need money now or want to pay off other debts faster, you can benefit from a personal loan. A fixed interest rate, predictable payment schedule, and fixed amount are a few benefits that might make a personal loan a better choice than other methods.
Have you used a personal loan before? Give us your tips in the comments below!
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