Here at Club Thrifty, we want you to get out of debt…and fast! Debt is the biggest obstacle standing between you and the life of your dreams. Take us, for instance. Once we finally destroyed our debt, we’ve been able to quit our jobs, work for ourselves, and travel the world – all in the span of less than 5 years.

Of course, we know it’s not possible for everybody to give their two weeks and jump ship. Getting out of debt isn’t a magic elixir for doing nothing the rest of your life. But, it does give you the freedom to do more of the things you want to do.

It might surprise you, then, to read that we think personal loans can be used to your advantage. I mean, are the people who rail against the evils of debt actually promoting loans as a way to get ahead?

Yep, we sure are.

You see, we also think it’s important to make the system work for you. And, if you use a personal loan wisely, it can actually help you to get out of debt faster. Don’t believe us? Let’s take a look!

When You Should Not Use a Personal Loan

The problem with personal loans is that people typically use them when they get into financial trouble. They apply for a personal loan and use it as a stop-gap measure to pay their bills. That’s bad news, my friend. Very bad news.

If you’re going to use debt, and you need to be very careful if you do, you should only use to help you get ahead. When you use a personal loan to get you through tough financial times, you’re not getting ahead. You’ve now got another bill to pay, so you’re falling further behind.

We don’t want that, and neither do you. That’s why using a personal loan for emergencies is a bad idea. Instead, you should be consciously working on building an emergency fund for these exact situations.

Every month, squirrel away at least 10% of your paycheck until you’ve accumulated no less than $1,000 in your emergency fund. This will help you handle any bad breaks or unexpected costs while you pay off the rest of your debt. Once all your debt is gone, you should keep a fully stocked emergency fund of 3-12 months of expenses. Yeah, that’s a big range, but the amount you need is dependent upon your own specific circumstances and ideas of comfort.

3 Ways to Use a Personal Loan to Get Ahead

Now that you know what not to do, let’s look at some ways you can use a personal loan to your advantage.

Pay Off Credit Card Debt

One of the best ways to use a personal loan is to pay off high interest credit card debt. Why pay 12.99% APR or more on your credit card debt when you can move it to a personal loan at 6.0%?

Here’s an example:

Let’s assume you have $2,500 in credit card debt at 12.99% (which is pretty good, BTW). You know that if you make the minimum monthly payment of $25, you’ll never pay it off. So, you decide to pay $35/month instead. That means you’ll have your credit card paid-off in 11.5 years, and you’ll pay a total of $2,323 in interest. (Yikes!)

However, if you move that balance to a 5-year personal loan at a 6.0% rate, you’re monthly payment will increase to about $48. However, you’ll only pay $400 total in interest. That’s a savings of $1,923 in interest AND 6.5 years on the loan.

Even if you raised your monthly credit card payment to $48/month, you’ll still save $785 in interest and over 1 year on your payments – and that’s if you only pay the minimums! So, if you can get a better rate – and you almost certainly can – it makes a lot of sense to move your credit card debt to a personal loan. Just be sure that you pay off the personal loan and don’t run up any additional credit card debt. That’s going to destroy any savings you just earned!

Pay Off Other Debts

Have an auto or motorcycle loan stuck at a high interest rate? Did you finance furniture or appliances that you have yet to pay off? The same principles as above apply here as well. Move your high interest rate debts to a lower interest rate, and pay them off as quickly as you can. Save that skrilla and don’t take out any more loans.

See also: Should I Refinance My Student Loans?

Start a New Side Gig

There are only two reasons I would ever suggest that it’s OK to go into more debt: Buying a house and starting a business. You’re probably can’t secure a personal loan large enough to buy a house, but you can borrow money to help you get a small business off the ground.

We think starting a profitable side gig is a great way to make extra money and get your finances on the right track. But, sometimes it takes money to make money. If you don’t have the cash to buy the equipment you need, a personal loan may be a great option for you. Use a small loan to get up and running, then hustle your buns off to make some sales. Pay off the loan ASAP, and who knows? You might be able to turn your side gig into a profitable full-time venture!

Where to Apply for Personal Loans

There are literally thousands of places that provide personal loans, so how do you know where to start looking? In the past, the best place to start was at your local bank. These days, you’re more likely to find the best personal loan rates through an online lender. Even so, most lenders still use a credit score to determine your creditworthiness and rates.

But, what if your credit score is less than perfect? There’s a solution to that too. One of our favorite online lenders – SoFi – recently announced that they are no longer using FICO scores in their loan qualification process! Instead, they look at your employment history, payment history, and your income to expense ratio to make a decision on your loan application. I’ve never liked credit scores, and I think SoFi’s new system seems like a much better way to determine creditworthiness.

Additionally, SoFi has great personal loan rates! They have 2 to 7-year loans available with fixed rates starting at 5.99% APR* when you choose the “AutoPay” option. You can borrow anywhere from $5,000 to $100,000 (minimum $10,000 for California residents), so you should be able to find a size to fit your needs. SoFi Personal Loans also come with “Employment Protection” and no origination fees or prepayment penalties.

To see if SoFi Personal Loans are right for you, you can apply through our affiliate link by clicking here.

Wrapping Up

Using debt to get ahead is always a risky proposition. However, if you use a personal loan wisely, pay it off, and don’t accumulate more debt, it can be just the kick-start you need to get your finances pointed in the right direction.

*SoFi Disclaimers