The stock market has been healthy, and unemployment rates are low — but consumer debt is on the rise. American families owe a combined $1.5 trillion in debt. Much of it is on credit cards, school loans and assets that depreciate quickly, like cars. For example, one out of every 10 consumers still has debt left over from the 2018 holiday season.
Is a personal loan the answer? You’ve probably gotten a few flyers in the mail or letters promising you a quick loan for thousands of dollars that you can put toward those high-interest loans and consolidate your bills.
Hold on for a moment. You need to look very closely at that loan offer and consider a few things first. For example:
Is the interest rate really any better?
Personal loans are typically unsecured, so you pay a higher interest rate accordingly. Many personal loans have interest rates as high or higher than what you already deal with on your credit cards.
Unless you have the credit score necessary to get a low-interest loan (15% or less), you probably aren’t saving anything.
Are you able to stop your spending?
Once you get that loan, nothing’s there to stop you from spending it however you please. It can be tempting to take a chunk and indulge your passions (especially if money’s been tight for a while).
Even if you use the money just to pay off your credit cards, that can leave you tempted to run up the cards all over again. If you aren’t cautious (and disciplined), you can end up with both a loan and credit card debt.
Is the payment in your budget?
Even with a loan, the payment may be more than you can manage. You can quickly get in over your head financially. Sometimes the best solution to consumer debt is bankruptcy. Find out more about how the process works and what options you have.