If you’re hoping to be debt free, you should read this.
- Paying off debt can be a challenge, and this is especially true if your debt has a high interest rate.
- A personal loan could help lower the cost of your debt and make repayment easier.
If you’re hoping to be debt-free by 2023 — or at least reduce your debt significantly — you don’t have long to work on that goal. And, there’s a potential move you could make that could make paying off your balance much easier (depending on your situation). You could take out a personal loan.
Borrowing more money can seem counter-intuitive when trying to get out of debt. But, in some circumstances, it could be exactly the right decision. Here’s why.
How a Personal Loan Could Help You Pay Off Your Debt Faster
Taking out a personal loan could actually help you pay off more of your debt by 2023 if your personal loan is at a lower rate than the debt you are currently trying to pay off.
Discover: These personal loans are the best for debt consolidation
More: Prequalify for a personal loan without affecting your credit score
You see, if you have high-interest debt (like credit cards), chances are a big chunk of every payment you make will be eaten up by interest. You may be paying very little capital because your financing costs are too high. So all those payments you work hard to send to your creditors may do very little to help you move towards your goal of becoming debt free.
If you can qualify for a low-interest personal loan, you can turn that debt from high-interest to low-interest. For example, instead of paying 17% annual interest on a credit card (or more), you could pay 8% or 10% or whatever rate you can qualify for on your personal loan. You then use the proceeds from your personal loan to pay off that expensive credit card debt.
If, for example, you owe $4,000 on one card and $5,000 on another, a personal loan of $9,000 could free you from both loans. You would only have one debt to pay and at a lower interest rate.
Once you lower your rate, more of your monthly payment should go towards reducing your balance so you can get out of debt faster. This can help you make much more progress on your debt repayment methods over the rest of this year and next year.
Does this decision suit you?
Refinancing your high-interest debt may be the right decision if you can qualify for a new loan at a lower rate and you’re not extending your repayment schedule too much by doing so. You can use your new low-interest personal loan not only to lower credit card rates, but also for any type of expensive debt you have, such as payday loans or medical debt.
You can shop around and find out what rate you can qualify for without affecting your credit score to find out if this approach will work. You’ll also want to make sure you can comfortably make the payments on your new personal loan and that you’re sticking to a budget so you don’t charge your credit cards more after you pay them off.
If you can get a new loan at a low rate and can rely on yourself to be responsible for repayment, there’s no reason not to move forward with this strategy as soon as possible so you can repay. the maximum amount of your debt by 2023.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.