How does your personal loan balance compare to the average?
Personal loans are popular among consumers because they are flexible and relatively easy to obtain. Personal loans also tend to come with competitive interest rates and don’t require you to put down collateral. Since personal loans come with fixed rates, consumers find them easier to plan for.
Personal loans are commonly used for expenses like home repairs, medical bills, car repairs, unexpected bills, and other major expenses. According to TransUnion, the total U.S. personal loan balance reached $225 billion during the first quarter of 2023. The average personal loan balance per borrower was $11,281 in that same time period. Balances for unsecured personal loans were up 26.3% YOY in Q1 2023, according to the same report.
Here’s how to manage your personal loan balance and pay it off faster.
Don’t borrow more than you can afford.
To pay off your personal loan balance faster, watch how much you borrow. It’s easy to go overboard when borrowing. If you have good credit, you could qualify for a large personal loan, but that doesn’t necessarily mean you can afford the monthly payments. You don’t want to end up falling behind on payments and ruining your credit score.
Calculate how much you need to avoid overborrowing.
Once you take out a personal loan, you will start accumulating interest. To avoid spending more on interest than necessary, only borrow what you need. If you are borrowing for a home improvement project, speak to your contractor about receiving a quote before you apply for your loan.
Determine your monthly payment and budget for it.
Determine what your monthly payment will be including interest for the life of the loan. Once you have a payment amount, budget for it. Does your budget feel really tight with that monthly payment? If so, you might want to consider borrowing less or postponing your purchase if possible. You’ll want a little wiggle room in your budget for unexpected expenses.
Make sure the term length makes sense.
The term of your loan can be just as important as the interest being charged. A longer loan term can mean more affordable monthly payments but also means that you will be paying that amount for longer. Your financial situation can change, so you want to make sure you have wiggle room.
Summary
Personal loans are popular, so it’s no surprise that the average personal loan balance is around $11,000. To keep your personal loan manageable, don’t borrow more than you can afford. Calculate how much money you’ll need before you apply for funding to avoid overborrowing. Determine your monthly payment and budget for it. Make sure the loan term you are being offered makes sense for you financially.
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