After taking a back seat to credit cards for many years, personal loans are popular once again. More and more people are turning to the lower, fixed rates of personal loans, especially after the most recent financial crisis. Personal loans can be used on just about anything, but there are some purchases that make more sense than others. What follows is an exploration of three of the most common personal loan uses.
Debt Consolidation
If you are carrying large amounts of credit card debt, a personal loan can provide you with some relief. The interest rates on personal loans are often far less than those of credit cards. What's more, the rates are typically fixed. While credit cards have become somewhat more consumer-friendly after the passage of the Credit Card Accountability and Disclosure (CARD) Act, the rates can still be excessive, especially if you carry a substantial balance, or if you have a low credit score. By taking out a personal loan, you can pay off your credit card debt, and then focus on paying off the personal loan, with its more manageable rate.
A Vacation
If you are taking a relatively short vacation, and you don't anticipate spending excessively, you may want to put most of your trip on a credit card. If you manage your trip budget well, you may be able to pay off your vacation after several months. However, if you plan on traveling long-term or if you are traveling as a family, a personal loan may be the safer bet, because it could end up being cheaper over the long run. It's always a good idea to plan your trip far in advance in order to define your budget. This will help you figure out how much money you may need to take out on credit.
Weddings
The average wedding price tag has skyrocketed in recent years. As much as weddings can be joyful and memorable events, they can also plunge couples into debt. Amassing tens of thousands of dollars of credit card debt in one fell swoop is never a good idea. In this case, a personal loan can help you cover major wedding expenses at a lower, fixed rate.
While a personal loan may be advisable in certain situations, you should make sure that you consider all of your options before taking one out. For example, if you are able to take out a home equity loan, you may find that the interest rate is far more favorable than that of a personal loan. Depending on your personal circumstances, however, a personal loan may indeed be your best option. If you need to consolidate credit card debt, or if you need to make a large purchase (or several large purchases) in a short period of time, taking out a personal loan could be a prudent move.
