In 2018, American debt hit an all-time high of over 13-trillion dollars. Whether it comes from credit cards, student loans, mortgages, or car loans, that number is staggering. And it’s hard to break free from, as each month those loans tack on additional interest that lenders need to pay, sometimes with the interest exceeding the initial charges. Fortunately, there are ways out, with debt consolidation and personal loans being prime examples of easing the burden on those with debt. So, what’s the difference between debt consolidation vs. personal loans?
We’ll cover both and their tradeoffs in the guide below.
If you aren’t already, you don’t want to be one of the 71 million US adults who have unpaid debts in collections. That doesn’t mean they haven’t paid any debts; it means that one or more haven’t been routinely paid.
If this is you with multiple debts, consider a debt consolidation loan. The general idea of a debt consolidation loan is that the loan is taken specifically for paying off all your debts, ideally at a lower overall APR.
Here’s an example: if you have three loans totaling $10,000 with a minimum payment of $500 a month and a combined APR of 25%, you’re going to shell out close to $3,000 in interest for those loans over two years.
It should come as no surprise that if you consolidate those three loans into one loan, with an APR of 15-20%, you’ll be paying considerably less in interest. Hundreds of dollars in your pocket for the same amount of time.
Better yet, you won’t have to worry about multiple bills coming in and out at different times.
One loan; one payment. Lower APR and more money saved. What’s not to like?
A personal loan has more uses than a debt consolidation loan. These could be used for weddings, honeymoons, medical expenses, or for home and auto repairs.
Unlike a mortgage, these types of loans are usually in the form of unsecured credit. That means the lender doesn’t use anything as collateral, such as a mortgage, which uses the property as collateral.
These loans often have a higher APR than secured loans as a result. However, you can normally receive the money as soon as the same business day, as either a check or a direct deposit.
These loans can be as high as $100,000. However, they typically fall somewhere between $1,000 to $20,000.
Because of their speed for qualifications, you could qualify for a loan up to $4,000 in minutes.
Debt Consolidation vs. Personal Loans: Which Is Best?
In the end, consider your debt situation and what makes more sense for debt consolidation vs. personal loans.
If you are in need of money, apply for a loan today. It only takes minutes to apply and is a helpful solution for those in a pinch.