When to Consider a Personal Loan

 Before you opt for a personal loan, you'll want to consider whether there may be less expensive ways you could borrow. Some acceptable reasons for choosing a personal loan are:

• You don't have and couldn't qualify for a low-interest credit card.

• The credit limits on your credit cards aren't adequate to meet your current borrowing needs.

• A personal loan is your least expensive borrowing option.

• You don't have any collateral to offer.

You might also consider a personal loan if you need to borrow for a fairly short and well-defined period of time. Personal loans typically run from 12 to 60 months. So, for example, if you have a lump sum of money due you in two years, but not enough cash flow in the meantime, a two-year personal loan could be a way to bridge that gap.

1. Consolidating Credit Card Debt- If you owe a substantial balance on one or more credit cards with high interest rates, taking out a personal loan to pay them off could save you money.

2. Paying Off Other High-Interest Debts=While a personal loan is more expensive than some other types of loans, it isn't necessarily the most expensive.

3. Financing a Home Improvement or Big Purchase- If you're buying new appliances, installing a new furnace, or making another major purchase, taking out a personal loan could be cheaper than financing through the seller or putting the bill on a credit card.

4. Paying for a Major Life Event-As with a major purchase, financing an expensive event, such as a bar or bat mitzvah, major milestone anniversary party, or wedding, could be less expensive if you do it with a personal loan rather than a credit card. Important as these events are, you might also think about scaling back somewhat if it means going into debt for years to come. For that same reason, borrowing to fund a vacation may not be a great idea, unless it's the trip of a lifetime.

5. Improving Your Credit Score- Taking out a personal loan and paying it off in a timely manner could help improve your credit score, especially if have a history of missed payments on other debts. If your credit report shows mostly credit card debt, adding a personal loan might also help your “credit mix.”