While most Americans hold some form of debt, not all debt is the same. One underutilized form of credit — the personal loan — can actually be more beneficial compared to a variety of other, more common options. If you carry these five forms of debt, here's why you should consider switching them out for a personal loan.
1. Credit Cards
Credit cards are some of the most dangerous forms of debt Americans have access to. As revolving debt that can be charged up at any time, they may never actually be paid off. And they carry high-interest rates. Pay off your credit cards with a personal loan to avoid charging up more debt. You'll get a fixed timeline for it to go away and the interest rate may be much lower.
2. Student Loans
Student loans are risky because they tend to have high balances and decades-long payoff terms. They also cannot generally be discharged in bankruptcy. If you have student loans, consider refinancing these into personal loans that carry much less risk. Many alumni also use this as an opportunity to consolidate student loans for easier payoff.
3. Collateral-Based Loans
Do you have a car or other property that guarantees a loan? Collateral-based loans — including traditional loans and title loans — offer credit based on the fact that if you default, the lender gets to keep your vehicle, home, or other assets. A personal loan has no collateral that's at risk. You won't have to worry about repossession or maintaining the asset according to anyone else's terms.
4. Payday Loans
A payday loan is a short-term loan to get a person by between paychecks. However, they tend to spiral due to high-interest rates and the inability to pay them off in a very short period. Anyone who has turned to a payday loan should seek out a safer and much less expensive form of credit through a signature loan instead. Chances of default and further financial harm will be vastly lower.
5. Tax Debt
Although the IRS and state tax agencies often offer payment plans, a taxpayer may want to think twice about owing the tax agency. The IRS has broad powers of garnishment and seizure, you may see refunds and other payments seized, and you may only be able to arrange a payment plan for one year's taxes. A signature loan pays off the tax bill and allows you to personalize your loan needs.
Where to Learn More
Want to know more about the advantages of changing any of these types of debt to a safer, less expensive personal loan? Start by consulting with a lender about personal loan rates in your area.
