Thursday, 17 January 2019

Wouldn't it be great if life's curveballs — unexpected surgery, a leaky roof, love — aligned with financial windfalls?

Of course, that is rarely the case. In those times when you're on the receiving end of an unexpected expense and you need help, a personal loan can be a very useful and versatile financial tool. Here are some instances in which a personal loan could be a smart financial option for you.

Medical Expenses

According to Nerdwallet.com, medical bills are the leading cause of personal bankruptcies in the U.S. What's more, credit.com reports that 43 million Americans have unpaid medical bills on their credit reports. There's little debating the fact even a modest unexpected medical event could do significant financial damage.

If you find yourself faced with a stack of medical bills, contact the hospital or healthcare provider and ask about setting up a repayment plan. If they offer you one, compare the interest and repayment terms with the rate and terms you could potentially get on a personal loan.

If you have a solid credit score, a personal loan might be a more affordable option. A personal loan is almost certainly a better choice than putting medical bills on a credit card, as interest rates on loans are typically much lower. 

Home Improvement

Home improvements can make your home much more livable, and typically increase the value of your home as well.

If you're considering a small or medium-sized project, for example from $2,500 to $15,000, a personal loan would be a good choice. If you have an excellent credit score, you can typically get a favorable interest rate on a personal loan. Plus personal loans offer set monthly payments, so you'll always know what you're paying each month and for how long.

Many people use home equity lines of credit for major home improvements because they can offer some tax advantages; however, home equity loans and lines are typically for larger amounts and have more limitations than a personal loan. Plus, if you have no equity in your home yet, you wouldn't be a candidate for home equity borrowing. 

Major Purchases and Expenses

The average cost of a wedding these days is about $27,000. Who has that kind of cash lying around? Truth is, there will probably be numerous times in life when you will need a significant amount of cash. Buying an engagement ring, furnishing your home, moving, paying for braces, and buying new appliances are just a few more examples.

Personal loans can be ideal for these types of needs because again, if you have a good credit score, you'll more than likely get a lower rate than you'd pay on a credit card. Plus, you'll have a set amount you'll pay off in a set amount of time. Unlike a credit card, credit does not become available when you pay your loan balance down, so you cannot incur more debt. Set monthly payments are also easier to manage then fluctuating monthly credit card payments. 

Paying Off Credit Cards

A personal loan can be a excellent option for getting out of credit card debt. Once again, it has to do with the interest rate. Chances are if you qualify for a personal loan, it will have a lower rate than most credit cards.

Using a personal loan to pay off credit card debt may also help your credit score because you're eliminating revolving credit debt, or credit that becomes available again when you pay down your balance.

With a personal loan, the principal and interest you'll pay is determined at the time the loan is made and will not change. And, as mentioned above, you also cannot use a personal loan to acquire any more debt.

Remember, however, if you continue to use credit cards after you've gotten the personal loan, you could quickly find yourself in an even worse financial position. Changing your spending habits is an important element of any debt-reduction plan. 

Consolidating Debt

Let's say you have a department store card, another personal loan with a higher rate, and some outstanding medical bills. Does it make sense to get a personal loan to pay them all off at once and consolidate your debt?

It could, for several reasons. First, it's easier to manage one payment each month, reducing the possibility you might miss a payment.

But ultimately it all comes down to the interest rate and loan terms. Just make sure you look at all the numbers in your comparison. For example, even if you get a lower rate but the term is two years longer, you could ultimately end up paying more in the long run.

The key in all these cases is to comparison shop and carefully analyze the numbers. Only then can you determine if a personal loan is the right choice for your specific financial need.

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