There are many different types of debt that people can have. Debt that is backed by some type of collateral is known as secured debt. Examples of this can be a car loan or a Home mortgage. Your home mortgage is covered by your home – if you stop paying your mortgage, the bank can take over your home. Likewise, your car lender can auto take possession of your car again when you stop paying Car loan.
Unsecured debts are debts that you are obligated to pay and that you have agreed to pay. Examples of this are credit cards, student loans, or personal loans. If you stop paying with your credit card, the bank may block your card and try to get your money back, but they won't be able to take you home or throw you in jail.
What is a personal loan?
A private loan is a type of unsecured loan that are available to people who qualify. In some ways, a personal loan is similar to a credit card in that they are both unsecured loans. One big difference is that with a personal loan, the loan amount, interest rate, and loan term are usually set in advance. You will usually receive a lump sum upfront and then have the same monthly payment until the loan is repaid, usually between 12 and 60 months. The terms and interest rates on personal loans depend on a number of factors. This includes your creditworthiness, the size of the loan and the duration of the personal loan.
How You Can Consolidate Debt With A Personal Loan
If you have a lot of unsecured debts with high interest rates, it can make sense to take out a personal loan to help you consolidate those debts. This could be an outstanding credit card balance, a used car loan, or unpaid medical or other debts. In general, the interest rates on these types of loans are higher than those on a personal loan.
The personal loan rates can be as low as 5.99% or even lower. This depends on your credit profile and the duration of the loan. If you have a significant amount of credit card or other debt with interest rates of 18-24% or higher, you can see how you can save a lot of money by consolidating your debts into a personal loan with a much lower interest rate. You can also simplify your life by only having one monthly debt payment instead of keeping track of multiple due dates and amounts.
Pro Tip: If you have a loan or credit card, you can check out Mint's free loan repayment calculator to determine interest amounts or if a loan or credit card is right for you before you apply.
How to choose a personal loan
There are several factors that can help you choose the right personal loan. First, you should compare different lenders to see what types of personal loans they could offer. You can check out our list of The best personal lenders as a starting point. Generally speaking, a longer-term and larger loan amount leads to lower interest rates. Also note any collateral requirements or prepayment penalties if you pay off your personal loan early.
How the Mint app can help
Using the Mint app can help you consolidate your debt and keep track of your payments. Whether you have multiple different loan payments or just a single consolidated payment, the Mint app can keep track of your payment dates and amounts. Don't miss a single payment. The Mint app can also help you view the interest rates and balances of your various debts. This can help you decide whether the Debt snowball or avalanche of debt The method of debt settlement makes the most sense for you.
The bottom line
A personal loan is unsecured and is usually not covered by any security other than your repayment promise. Unlike a credit card, which gives you a revolving loan amount up to your entire credit limit, a personal loan gives you a fixed amount of money up front. You then pay it back in regular equal monthly installments until the loan is repaid in full.
Personal loan interest rates are typically lower than credit card or other types of unsecured debt. So, if you have a significant amount of high-yield debt and you are ready to start paying it off, using a debt consolidation personal loan may make sense for you. That way, you can combine all of your credit cards and other high-interest debt into one monthly payment. Hopefully at a much lower rate.
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Dan Miller (62 posts)
Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children.