Home > 2015 > Personal Loans

The Most Underappreciated Tool for Getting Debt Free

Advertiser Disclosure Comments 0 Comments

If your holiday debt is much higher than expected, you may be inclined to apply for a balance transfer credit card as a way to mitigate the interest. But there’s another financing option that could help you get debt free as well: combining several unsecured debts into a single, personal loan.

The Pros & Cons of Personal Loans

Personal loans are installment loans, like a mortgage or auto loan — you pay the debt back by making a set payment over a specified period of time. They may be helpful to consumers who are juggling high interest credit card debt on multiple cards since it can be simpler to make one payment a month instead of four or five (You can use the personal loan to pay off the credit card debt). And, depending on your credit score, personal loans can also have a more favorable interest rate than your plastic. Moreover, because personal loans have a fixed term (usually three to five years), they come with a built-in plan for paying off debt. If you pay your loan as agreed, when its term is over, you’ll be debt-free.

Of course, there’s a trade-off there. You’ll be locked into the monthly payment, so any financing you are thinking of taking on will need to be well within your budget. (You’ll want to avoid missing a payment, potentially incurring fees and subsequently damaging your credit score.) And, if you are using the loan to consolidate credit card debt, it’s in your best interest to put your credit cards one ice — you don’t want to sabotage your debt repayment plan by running up new balances as you’re paying back your personal loan.

Here are a few other to-dos if you’re thinking about applying for a personal loan.

1. Know Your Credit Score

You generally need to have good or excellent credit to qualify for a competitive personal loan, as terms and conditions will be determined by creditworthiness. Good credit typically means scoring a low interest rate; poor credit could mean you won’t even qualify.(Underwriting is also generally based on your annual income as well as your debt-to-income ratio.) You can see where your credit stands by viewing your free credit report summary, updated each month, on Credit.com.

2. Check Your Credit Report 

You’ll also want to get copies of your credit report from the three major credit reporting agencies to check for any discrepancies that you need to clear up. Errors, such as a old, paid-off debt collection account, could be dragging down your score, making it harder for you to get an affordable personal loan. You can pull your credit reports for free each year at AnnualCreditReport.com. If you find an error, you can dispute it with the credit bureau in question (Equifax, Experian and Trans Union).

3. Shop Around

Loan applications typically generate a hard inquiry on your credit report, which could lower your score by a few points. So it’s a good idea to do your research ahead of time and only apply for loans that offer competitive rates that your credit is likely to qualify for. A financial institution where you already have checking and/or savings accounts may be a good place to start your search since some banks offer discounts on loan interest rates to existing customers. You may also want to speak with a loan specialist who can explain the minimum credit score and other requirements needed to qualify for a personal loan.

More on Managing Debt:

Image: Wavebreakmedia Ltd

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team