No one plans to end up in debt, but it happens to millions of consumers every year. The credit card charges that seemed manageable just a few months ago have amassed into a pile of debt that just won’t seem to go away. Sudden illness, job loss, and countless other misfortunes can land even the most careful consumer in overwhelming debt.
If interest rates and high balances are keeping you from making any progress toward eliminating your debt, you’re probably looking for alternatives to give you some financial relief.
Two of the most common tools are debt consolidation loans and personal loans. In this article, you’ll learn the differences between these debt-reduction tools, so that you can make the best choice for your circumstances.
How are debt consolidation and personal loans different?
To many consumers, debt consolidation loans and personal loans are practically identical - some use the terms interchangeably. There are differences, though, that suit each one to a specific set of needs.
A personal loan can be approved for any legitimate purpose - in many cases, the purpose does not even need to be stated on the loan application. Consumers can use these loans to purchase vehicles, make property upgrades, take a vacation, or anything else.
Typically, a personal loan is unsecured, meaning that there is no collateral “held” until the loan is repaid.
The interest rate you pay on your personal loan balance will depend on a variety of factors, including your credit score and other evidence of creditworthiness.
A debt consolidation loan, on the other hand, is specifically designed for the purpose of consolidating multiple debt accounts into a single lump sum and providing a defined framework for paying off that debt over a specific period of time.
Debt consolidation loans offer interest rates that are sometimes lower than your credit card and other loan interest rates. This could allow you to pay off debt much more quickly, with a lower total debt cost.
A debt consolidation loan can also simplify debt repayment. Instead of managing and remembering to pay on multiple accounts each month, you can simply make one predictable monthly payment to reduce your debt.
Which type of loan is right for you?
When you’re comparing personal loans for debt consolidation loans, consider your overall purpose. Are you trying to eliminate debt so that you can have a more financially stress-free lifestyle? Or are you planning to purchase new items to enhance your lifestyle?
If you want to say goodbye to debt for good, a debt consolidation loan could be the solution you’ve been looking for. If you’re in the market for a new car, furniture set, or other purchase, though, a personal loan could be the right choice for you.
If you need help choosing the best solutions for you, contact us today.