Caring for aging parents can be a role reversal. Let's say there was a person named Monika, who at 52 found herself taking a more active role in her parents’ lives. They were slowing down and starting to think about moving into a retirement community. That’s when Monika stepped in with an alternative; what if mom and dad moved in with her?
There was just one problem: Monika’s home wouldn’t be manageable for her parents if their health failed. She decided to make the first floor more accessible and brought in a contractor to do the update. Though the revamp was a good value, Monika didn’t anticipate all of the requirements they’d need, and the enhancements ended up costing more than she had budgeted, forcing her to put a hefty sum on her credit card which had a high APR. She looked at different options to help manage her financial setbacks and considered taking out a personal loan to consolidate her debt, but borrowing money isn’t always a straightforward process. As Monika looked at different options she learned a lot along the way. Here are common misconceptions Monika had about borrowing money and what she learned.
These tips can help consumers like yourself when looking for a loan to consolidate debt.
When you first wade through your monthly expenses, you’re not likely to find a sum large enough to pay down a large debt in full. But it may be possible to free up extra money by cutting mundane expenses. You might not discover all the money you need at once, but uncovering some extra funds can help you shrink the amount you might need and make the decision to borrow money a little easier.
In most cases, when you borrow money you have to pay back the full amount you’ve borrowed plus interest. You should make sure you can afford the loan payments and understand the total interest costs before you borrow money.
You should make sure you understand the details before you borrow money. Read the fine print on any product you’re considering using. Something like an origination fee can cost you. An origination fee is a fee that a lender can charge for processing a new application and preparing the loan for disbursement. Some lenders take the fee from the money you’re borrowing, so you don’t actually receive the full amount of the loan. Fees may also be charged for late payments or returned checks. Factor the cost of borrowing money into your choice of lender.
The interest rate on a personal loan will affect how much you end up paying over the lifetime of the loan, and even a small difference in that interest rate can add up over time. For example, if you borrow $10,000 and pay it back over 5 years, you would pay a total of $12,166 if the loan’s interest rate were 8%, $12,748 at 10% or $13,346 at 12%. When you borrow money at a lower interest rate, your monthly payments will be smaller and the total you pay for the loan will be less.
While lenders use credit scoring and models to predict which borrowers are worth the risk when making loans, models and credit scores aren’t perfect. Even if you’re approved by a lender you should make sure you know what you’re getting into before borrowing money, what the total cost of borrowing money will be, and what kind of payments you can afford.
While it’s tempting to use the credit card that’s already in your wallet, borrowing money with a personal loan could save you money in the long run. Look for a lender with a quick online loan application process who can make a loan decision instantly and disburse funds in just a few days.
Personal loans may carry lower interest rates than credit cards, especially if you have good credit. Taking that into consideration, and after researching options, you may find that a personal loan is a good choice for a variety of uses, such as: consolidating credit card debt, paying off medical bills, fixing your car, covering the costs of a wedding, or celebrating a special milestone with a vacation.
In Monika’s case, to address the credit card debt she incurred as a result of making arrangements for her aging parents, she first worked on reducing expenses. She found some room in her budget and her mother volunteered to help with tidying, like cutting out the need for a cleaning service. Her father also offered to sell one of the couple’s two cars since Monika's house was so centrally located. Those savings helped Monika pay down her credit card debt substantially. To save on interest, Monika decided to take out a personal loan with a lower interest rate to pay off her remaining credit card debt. Next, Monika looked into the best way for her to take out a personal loan, researching various options to find a loan with low-interest rates that worked for her and monthly payments that fit within her budget, so she felt less stressed about owing money.
Before you borrow money, you should make sure you understand how the debt will affect your overall budget. Manageable debt can make the difference between feeling underwater and staying afloat.