Debt prioritization is tricky. Here’s how a personal loan can help.
If paying off debt is on the top of your to-do list, you’ll probably face a common dilemma. Which debt do I pay off first? If you’re like many Americans, you have multiple debts in your name like a mortgage, student loan, credit cards, or car lease. According to a recent survey, 14 million Americans have over $10,000 in credit card debt. The total student loan debt in America is about $1.6 trillion. When it comes to paying for cars, many people depend on a car loan. About 37% of U.S. households have auto loan debt. All that debt can be difficult to manage and make it challenging to decide what to pay off first.
There are different theories on which debt you should prioritize. Some financial experts suggest starting out with paying off small balances so you get a morale boost when those debts are paid off. This method is referred to as the debt snowball method. Others believe you should prioritize becoming debt free, which means focusing on debt with the highest interest rates. This method is known as the debt avalanche method. However, knowing these theories might not make it any easier for you to decide which debt to prioritize and pay down. One way to make debt prioritization easier is to take out a personal loan.
Personal Loans and Debt Prioritization
Personal loans can help with debt prioritization by removing the decision all together. When you take out a personal loan, the lender will provide you with a lump sum in your bank account, which can be used for a wide range of expenses, including debt repayment. You can calculate the total sum of your debts and request that amount from a personal loan lender. If approved, the money can be used to pay off your high-interest debts.
Once those other debts are repaid, you’re left with one loan to repay instead of multiple debts. This makes it easier for you to manage your debt, and you don’t have to decide which debt to pay off first. When you have a little extra money to put towards debt repayment, you won’t have to decide which debt the money goes towards because you only have one debt.
This approach to debt repayment is known as debt consolidation. This method can help you to feel accomplished as each payment you make is towards becoming debt-free instead of only paying off one of many debts. The goal is to find a personal loan with a lower rate than your existing debts to reduce the overall cost of your debt.
Debt prioritization can be tricky when you have multiple types of debt. For example, if you have multiple high-interest credit cards, a car loan, and a student loan – which do you pay off first? There are two common methods to debt repayment, the snowball and avalanche methods. However, both could leave you feeling defeated and that you aren’t paying off debt fast enough.
If you can earn a competitive interest rate on a personal loan, debt consolidation may be a good way for you to tackle and pay off your debt.