When considering credit card debt consolidation, it might be tempting to get a personal loan rather than seeking the help or advice of a reputable consolidation company. After all, many individuals have successfully obtained personal loans for this purpose, thereby getting rid of a mountain of debt, replacing it with one monthly payment. However, for the consumer whose credit report is average to poor, or who already has a mountain of debt, finding a good interest rate can be next to impossible.
A personal loan can be used for any purpose, including the reduction or elimination of other debt. These loans do not eliminate debt all together, but transfers the debt from one lender to another. Personal loans can be unsecured or secured, but the most common loan is secured. Taking out a secured loan, which is often attached to one’s home or other property, to pay off unsecured credit card debt is not a wise decision.
On the other hand, obtaining a loan through a debt consolidation company provides a logical escape route from pressing indebtedness. These companies will pay off all of your debt, which will keep your credit rating in good standing. Then, you will be required to make one small monthly payment toward the total balance, which will include one small interest fee rather than numerous large ones.
In comparison to personal loans, credit card debt consolidation is the best option. Consolidation allows you to combine existing account balances into one single, easy to manage monthly payment. Since the goal of consolidating your debt is to help you get out of debt, the payment schedule is based on your personal financial circumstances. A personal loan, on the other hand, must be repaid based on the lender’s schedule.
Is it recommendable to get a personal loan and consolidate one’s debt? If the consumer is able to obtain an unsecured personal loan with a lower interest rate than their other debts, then it is an attractive option. However, since most debt consolidation candidates are already swimming in debt, few lenders are willing to lend large sums of money. The other option, a secured loan, turns old unsecured debt into debt that could potential rob you of your home, car, or other property. Secured personal loans, therefore, are not recommended.
Ultimately, choosing to participate in a credit card debt consolidation program or attempt to resolve one’s debt with a traditional loan is a personal decision. Consumers should be cautious about taking the first loan offer, while educating themselves about alternative financing options.