While it’s hard to measure just how many New Year’s resolutions fail, some studies peg the figure as high as 80%. It’s easy to get pumped up about a new goal for a while, but it’s much harder to change your behavior for the long-term. That’s why gyms are packed in January and February but empty out later in the year, and it’s also why so many people start diets on January 1 only to fall back into bad habits by early spring.
On the financial side of things, it’s just as easy to start the year with big financial goals but to let life’s twists and turns knock you off track. No matter how much you want to save money or improve your finances, sticking with anything for a year or longer is, well, just plain hard.
Five Ways a Personal Loan Can Help You Reach Your Goals
While we sincerely doubt that borrowing money is one of your goals for the new year, it’s important to note that personal loans can help you reach some of your goals — and they could even help you save money. Like any other financial product, it’s all in how you use them.
Could a personal loan help you in some way this year? It’s possible, if you borrow with purpose and have a goal in mind to begin with. Here are five goals a personal loan could help you realize:
Pay Off High-Interest Credit Cards
One of the most popular ways consumers use personal loans to their advantage is using them to consolidate high-interest credit card debt. Considering the average credit card interest rate is now over 17% and many personal loans offer fixed rates as low as 5%, it’s not too difficult to see how this could work.
When you consolidate credit card debt with a personal loan, you get several important benefits outside of a lower interest rate. You get a fixed interest rate (instead of a variable rate), a fixed monthly payment that never changes, and a fixed repayment deadline so you know exactly when your debt will be paid off.
Imagine for a moment that you have $12,000 in credit card debt with an average APR of 18%. If you made a minimum payment of just $240 per month, or 2%, it would take you 94 months (almost eight years) to become debt-free and you would pay $10,347 in interest during that time.
If you were able to take out a personal loan at 5% APR, on the other hand, you could pay down the debt in just 54 months (4.5 years) with the same $240 monthly payment. Your total interest costs would work out to only $1,484, saving you almost $9,000.
Consolidate Other Debts
Also note that you can consolidate other debts with a personal loan to save money and simplify your finances. Types of high-interest debt that work well include high-interest car loans and personal loans, medical debts that are accruing fees, and any other debts you have that are charging high rates and dragging you down.
Ideally, you could consolidate all your high-interest debts into a new personal loan with a lower interest rate and better terms. From there, you could focus on debt repayment and building a lifestyle that doesn’t require debt to stay afloat.
Paying for a Home Renovation
While you can use a home equity loan or home equity line of credit (HELOC) to pay for a home remodeling project, you’ll put your home on the line if you do. That’s because these types of loans require you to put your house up as collateral. This means that, if you stop repaying your loan, you could potentially lose your property to foreclosure.
While personal loans tend to come with slightly higher interest rates than home equity loans, they are unsecured, meaning you don’t have to put up your home or any other collateral to qualify. This makes personal loans a better option for some people, albeit not everyone.
The bottom line: If a home remodeling project is on your agenda this year, a personal loan can help you cover the expense with a low interest rate and fixed monthly payment. While remodeling your home may not be cheap, doing so can help you enjoy your property more or make more room for your growing family.
Make Important Home Repairs
Some home projects are essential if you want to avoid pricey bills in the future. You may need to fix a leaking roof before it causes expensive water damage inside your home, for example. It’s also possible you need to replace your HVAC system so your family doesn’t sweat to death or freeze.
If you have a home repair you absolutely need to make this year, a personal loan can help you cover the expense with a fixed monthly payment and low rate. While it’s never fun to have to spend money repairing your home, especially if you need to borrow to pay for it, addressing those repairs now could help you save money in the long run.
Cover an Emergency Expense
Finally, don’t forget that you could use a personal loan to cover a surprise emergency expense you didn’t plan for. Doing so could help you get the cash you need in a pinch without knocking your other financial goals off track.
Imagine your child suddenly breaks an arm and you’re forced to cough up the funds to meet your health insurance deductible in a few short months. Without any emergency savings set aside, you could charge the expense to a credit card at a high interest rate, but you could also take out a low rate personal loan to cover the bills. While either option could help you cover medical bills in an emergency, a personal loan would cost less over the long run.
The Bottom Line
In a perfect world, everyone would have a fully stocked emergency fund and plenty of money saved for retirement, too. But, in the real world, many of us are plagued with debt and struggling to get by, let alone save money every month.
Borrowing money is never ideal, but it can work out in your advantage if you take it seriously. By shopping around for a loan with the lowest rate and best terms and keeping up with your monthly payments, you can get the cash you need and potentially even save money without foiling your financial plans.
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