Paying down debt can be challenging. But if you’re ready to pay yours off and are looking to consolidate through a personal loan, you’ll want to weigh all the pros and cons and know your options.
The Pros of Using Personal Loans
- If your credit score is 670 or higher, then a personal loan may be an option for you. However, even if you do get a personal loan, the question remains what kind of interest rate you’ll get and if it will be lower than the rate on your current debt.
- You’ll get a fixed rate and payoff date, so you have a set goal to work toward.
The Cons of Using Personal Loans
- If you have a credit score that falls below a “good” rating, you’ll likely either be denied or pay high fees in interest (defeating your goal to get lower interest rates).
- Your payment history and the amount of debt you’re in have a heavy impact, and you might only get approved for a certain amount. This means you could end up still paying on multiple debts, doing little to help you streamline your payment process.
Why a debt management program?
Alternatively, a debt management program (DMP) offers another route for debt repayment. To get started, you’ll want to make an appointment with a credit counselor at a credit counseling agency. They will help you create a budget, as well as enroll in a DMP. Once enrolled, your counselor will work with your credit card companies to consolidate your debt into one affordable monthly payment and lower your interest rates (we typically see APRs go from 22%–6.8% on average), so you can pay off your debt in three to five years.
With a DMP, you don’t have to worry about boosting your credit score. Once you’re in the program your counselor will help you stick to your plan, and as you repay your making on time monthly payments and begin to pay down your debt, we often see credit scores increase.
Bottom Line
While a personal loan may work for some people, if you’re struggling to keep up with payments and need to boost your credit score, a debt management plan may be the better path to a debt-free life.