How can I consolidate my debt with a personal loan?

Finding yourself in debt is a scary situation.

Debt is not uncommon, as a majority of Americans owe money somewhere. However, your situation may be worse, and it'll require you to take immediate action. One way you can achieve financial freedom is through debt consolidation.

Here is how you can benefit from consolidating debt with a personal loan:

Take out a personal loan

Taking out a personal loan is one way to consolidate your debt. By following this plan, you essentially take out a single loan from a lender. You then put this money toward other debts under your name, such as credit cards, medical bills or anything else that has high interest. You go from numerous monthly bill payments to one (excluding things like utilities, rent, a mortgage and other necessities).

"Most individuals take out a personal loan to pay off their credit card debt."

According to Debt.org, most individuals take out a personal loan to pay off their credit card debt though.

What are the benefits?

Why should you take consider consolidation? By combining existing bills into one, you're able to save on interest. Every balance you owe is charged interest. If you're only able to make minimum payments, you end up spending more to pay off debt because of interest. So if you have a lot of types of debt, interest can be a big thorn in your side.

A personal loan helps alleviate that pressure. By paying off all existing debts, you now only have to worry about paying back the loan. Lucky for you, loans comes with fixed interest rate installments, meaning the rate won't change over the loan's term.

One monthly debt payment is a lot easier to track. You'll also be able to improve your credit score over time, provided you make timely payments.

What type of loan do I get?

Banks, such as Landmark, offer loans to help you consolidate debt. You'll want to speak with a representative to find out more information, including the total amount you may borrow and at what rate.

However, there two types of personal loans you can borrow: secured and unsecured. Let's take a look at each:

Secured loan

A secured loan is tied to an asset, such as your house or car. This asset acts as collateral, should you default on the loan. While you need to put forth a piece of collateral, secured loans are easier to borrow, mostly come with lower interest rates and you can borrow more if need be.

The downsides to a secured loan are the risk of losing an asset if you can't pay it back and generally longer repayment terms. This means you may end up spending more money over time because of interest.

Unsecured loans

Unsecured loans are the opposite of their secured counterparts. You don't have to put up any assets as collateral and the repayment terms are shorter. However, unsecured loans come with their fair share of risks.

First, unsecured loans are harder to borrow, as lenders may not want to work with a high-risk borrower. Unsecured loans also aren't ideal if you have large amounts of debt because borrowing amounts are generally lower. And while repayment terms are shorter, interest rates are higher.

Girl on smartphoneA personal loan can help you consolidate debt and make life easier.

Which is right for me?

Before you take out a personal loan, you'll want to consider which is right for you. Take the similarities and differences into account.

If you're considering a secured loan, NerdWallet recommended you should determine if you can afford to lose your asset. For example, many people use their car as collateral, but this may not be a smart move if you rely on your car for work, buying groceries or visiting family on the other side of town. Similarly, you have to determine whether the higher interest rates of an unsecured loan are worth it.

One final point of consideration is the availability of loans. Unsecured loans are easier to borrow while secured loans are less common.

Finding yourself in debt is not the end of the world. There is a step you can take to dig yourself out, and it's in the form of a personal loan.

For more information about smart ways to manage your finances, contact Landmark Bank.

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