Saving money by obtaining a personal loan may seem laughable. Most people may think that getting a loan will just put you farther into debt. That is not the case, though. A personal loan can get you out of debt and consolidate all of them that are not recurring bills. For instance, your monthly utilities will have to be paid separately every month, even if you do get a loan. Once again it looks like a personal loan would not be beneficial, and in all instances it may not.
There are some circumstances in which a personal loan would be more than beneficial. It could be lifesaving, or at least saving you from financial ruin. Let us check out some of these instances, which will save you money in the end.
- Consolidate all your credit cards into one payment. One payment that is not gaining compounding interest. The interest rates on your credit cards add every month. Every month that you pay on them, especially if you are only able to pay the minimums, will gain more interest on the remaining balance. A personal loan will charge you interest, but only one time.
- You can use a personal loan to pay down some of your other high interest loans or accounts. It may seem silly, but it is like refinancing your house mortgage at a lower interest rate. In the end you will end up saving yourself some money due to the difference in the interest rate. Let us use an example of having an account at the local tire store, with an interest rate of 14%. Now, take a minute and compare personal loans and see if you can get one for 11% interest. It would be better to get the loan and pay the tire account off. This will obviously only save you money if you stop using the tire account. If you max it out again you lost a substantial amount of interest savings, and now you have to full payments that need paid on.
- If you have one big expense that has come up, such as paying for your daughter’s wedding, or replacing a car that just blew the engine, a personal loan will hit the spot. If you fought to come up with the money by cutting corners you could probably achieve your financial goals. That may leave you walking for a few months, though. With a loan you can deal with the expense and then go from there. Eventually it will save you money because you will not have to refocus funds to pay for the expenses that you neglected while saving up.
- The last way that a personal loan can help you save money revolves around a three-digit number that is what the financial world revolves around. Your credit score. If you do not have a good credit score you will never have the opportunity to get bigger loans when needed. It can even affect what job you get, and what house you are able to rent. Getting a personal loan will lower your score for a little while, but as you pay it down your credit score will increase, by more than what it went down in the first place. This is how you improve your score. Slowly but surely.
Those are the biggest reasons that a personal loan can help you save money. It is true that up front it will end up costing you more money, but in the end, you will save money. It kind of follows along the saying that “you have to spend money to make money.” In this case it is correct because it could help you save a substantial amount of money, depending upon your specific situation.