A personal loan is an excellent idea when you want to use it to reduce your current debt. This loan allows you to take a high interest debt, consolidate it to be a lower interest rate, and pay it over a period of time that works for your budget. Be sure you’ve done the work to know that the loan will not take you deeper into debt. If you haven’t done that work yet, read our article about good reasons for the loan , and bad reasons for the loan.
Once you’ve decided, here are the steps you can take to move forward with your decision:
Work on a budget and stick to the amount
How much do you truly need to borrow? It’s important to figure out this number so that you borrow the appropriate amount. If you borrow more than you need, then you have a higher chance of spending more. The more you spend, the more you may owe in interest. Decide how much you can truly live with.
Which personal loan should you apply for?
You can shop online and read tons of reviews. Or, you can visit your financial institution that you have a good relationship with. Your bank may get you a better rate because they know you and know you can manage your money. Be cautious of being sold something other than what you came in for – such as a new credit card.
Use a Loan Repayment Calculator
A repayment calculator like this one can be used to calculate how much your monthly payments will be. This tool is helpful because it forces you to realize the true amount you’ll need to pay each month. With this tool, you can plan for how much you’ll need to make, how much you should expect to pay. The longer you keep the debt, the more interest you pay so it’s best to pay the loan off as quickly as you can.
Check eligibility criteria for each loan
Make use of your time by checking the requirement for each loan. Each loan can vary in their requirements so it’s necessary to be sure you qualify. Doing this can save you time when you go to apply.
Complete an application
Depending on the loan, you can either apply online, or apply at your financial institution. This application will tell you if you’re approved or not.
What information may be needed:
When you apply, you’ll be asked to provide personal, employment, and financial documentation and information to the institution. This information is used to make sure you are qualified to take the loan. Each institution may vary but here are examples of what you can expect.
Proof of identity (such as your driver’s license and or passport)
Proof of income (such recent pay slips, proof of bank wage deposits, personal tax returns/business tax returns)
Use these steps to inform yourself as you apply for a personal loan. Using a loan to pay off debt is a quick and easy way to pay down higher interest credit card debt that you may have scattered across multiple cards or store accounts. Having lots of credit cards can be hard to keep track of. When the debt is consolidated at a lower interest rate with a single fixed payment, you can save hundreds of thousands of dollars over time.