Same Loan, Different Purpose
Managing multiple debts can be stressful—but understanding your options doesn’t have to be. If you’re exploring ways to simplify repayment or lower your interest rates, you’ve probably come across both personal loans and debt consolidation loans. Here’s what you need to know to make a confident choice.
How They Stack Up
The difference between a debt consolidation loan and a personal loan is nothing really. A debt consolidation loan is simply a personal loan used to consolidate debts. While you might see it advertised as a debt consolidation loan, they aren’t different from personal loans. A personal loan becomes a debt consolidation loan if you use it in that manner.
Personal Loan Basics
Now that we’ve cleared that up, let’s look at the nuts and bolts of a personal loan. A personal loan is an installment loan that you (typically) repay in monthly payments. The loans usually range from $1,000 to $20,000 and can be used on anything you want. Rates and terms will vary.
Benefits
If you use your personal loan to consolidate debt, there are a few benefits:
- Lower Rate. Personal loans often have lower interest rates than credit cards and other forms of debt.
- One Easy Monthly Payment. If you consolidate your debts, now you’re paying just one bill instead of many.
- Fixed Rate. Most personal loans have a fixed interest rate, so you’ll know your rate every time.
Do One Thing: Consider a loan for debt consolidation if you’ll save money on interest payments. Then plan to pay off the balance on time.