When you’re working on managing your debt, the last thing you probably think about is taking out personal loans. However, personal loans might be helpful for reducing overall interest payments and consolidating debt. They’re also good in a pinch when your pocketbook is tight and you need cash right away for emergency expenses such as medical care, home repairs, and appliance replacements. Personal loans can also be used to:
- Get rid of credit card debt
- Make down payments
- Purchase vehicles
- Fund big events
Don’t take personal loans lightly, however. Personal loans shouldn’t be used as financial relief in desperate situations. Instead, they should be used strategically to leverage money and achieve your financial and lifestyle goals. If personal loans fit into your financial management plan, consider these tips on finding the best personal loans and increasing your chances of financial success.
Boost Your Credit Score
Lenders consider you less risky when your credit score is high, which means you’re likely to get a better deal on your loan. Your credit score is primarily based on your payment history, public record, balance-to-limit ratio, and total revolving balance. Though you are entitled to a free credit report each year, it’s wise to pay for a monthly report program and keep tabs on your progress. If your credit report contains errors or if you think you are a victim of credit fraud, you can dispute the issues relatively quickly and prevent long-term damage to your report.
The easiest way to boost your credit score is to make payments on time. Keep long-standing credit lines open to demonstrate your credit history, but consider the number of accounts you have open. Sometimes having too many open accounts can hurt your score, even if the balances are low or zero. Work on reducing your total revolving balance and balance-to-limit ratio. Your balance-to-limit ratio, also called your utilization rate, shows how much of your allotted credit is currently used. You want this number to be below 30 percent to demonstrate responsible borrowing habits.
Talk to Different Lenders
Pick up the phone and speak with the lenders directly. Don’t just evaluate the agencies by reviewing their websites. Ask them questions, get to know the people, and observe how you are treated during the conversation. You want to choose lenders that are trustworthy and on your side. If any conversations make you feel uneasy, trust your instincts and move on to another agency.
Read the Fine Print
Read every single word of the loan agreement and seek legal counsel if you’re not sure about the terms. Watch out for fees and penalties, and review the payoff requirements in detail. Look for excessive application and processing charges, early payoff fees, and payment plan options. Make sure you fully understand the loan requirements before you enter a legally binding contract with a lending agency.
Choose the Best Interest Rates
Look for low fixed rates and avoid variable interest, which fluctuates based on market trends. Also, watch out for compounding interest, especially with daily and weekly compounding periods. Run a quick online search to find the best interest rates for personal loans and call around to lending agencies to see if they can sweeten the deal. If you’re considering personal loans for debt consolidation, you don’t want to take out loans that increase the total amount of interest you already spend.
Read Reviews Constructively
Customer reviews provide insight into each agency and the entire personal loan industry. However, sometimes online reviews must be taken with a grain of salt. Unsatisfied customers who voice their opinions in extreme ways may or may not provide useful information. It is important to read both positive and negative reviews while considering the nature of the lending situations and how they relate to your financial position.
Carefully Consider Your Options
If you need quick cash and can afford the repayment plan, a personal loan can lighten the load and help you achieve your goals. However, borrowing money to help manage debt can be risky, so make sure your situation fully lends itself to the benefits of a personal loan. Talk with your financial advisor if you have additional questions or need guidance. If you decide that a personal loan is right for you, position yourself well by improving your credit score and choosing a reputable company that you trust.