Today, a Guest Post from Dona Collins -
You may not believe this, but not all debts are bad. If you never take on any debt, then how can you build hope to build a positive credit history? If you want to find a place to live or a buy a car, it helps tremendously if you have already established good credit. Debt, when managed properly, can help you get the things you need in life. For that reason, and many more, personal loans are a type of debt that can be beneficial as long as you spend the money wisely.
Finance Home Improvements
Investing in your home is rarely a bad idea. If you have a project in mind that will add value to your home, a personal loan can be a great way to finance it without tapping into your equity. Some websites like prosper.com or creditloan.com offer loan rates under 7%, if you qualify, so you can afford to borrow the money for your project without racking up high-interest credit card debt. The right home improvements can provide a great return on your investment.
Improve Your Credit
When the credit bureaus calculate your credit scores, they look for a mixture of revolving credit lines like credit cards and installment loans. Taking out a small personal loan and paying it off on time will help boost your scores. You have to establish a payment history though; you cannot just borrow the money and then pay it right back. Make monthly payments for at least six months to a year before you fully repay the loan.
Create an Emergency Fund
In some cases, it actually does make sense to borrow money just to have it for a rainy day. It is good to have a sizeable lump sum of cash you can access when you need to. Instead of waiting until an emergency expense smacks you in the face and you are desperate, considering getting a personal loan that you can pay back over time to establish your savings. You can get a better deal if you take time to shop around beforehand, rather than wait until you are pressed for time.
Pay Less Interest
Personal loans are unsecured, so they do come with a higher interest rate than a secured loan, but the rates are still lower than most credit cards. If you have high credit card balances, taking out a personal loan to pay them off will save you money. You may even want to consider getting a specific debt consolidation loan or lower interest personal loan. This does require that you have to stop using your credit cards if you want to keep your debts low.
Start a Side Hustle
While the term might remind you of playing pool, a side hustle is simply another term for starting a part-time business from home. Many people take their favorite hobbies and turn them into a side business that helps bring in some extra income. After you receive the loan funds, take the additional income from your new business and use it to pay off the loan faster so that you can enjoy 100% of your profits.
Buy a Used Car
Usually car loans are a better way to buy a vehicle. However, lenders tend to be more reluctant to loan money for used cars than they are for new cars. Additionally, if you already have an existing car loan then you might not be able to qualify for a second one. Whether you are purchasing a vehicle for yourself, or helping someone else buy one, a personal loan is an alternative worth contemplating if you cannot qualify for a good car loan.
Putting off medical procedures because you cannot afford them is never a good idea. There are many expenses that traditional health insurance does not cover like dental problems that can create major health complications if you do not get treatment. It does not matter if you apply for a loan online or go to a traditional bank like Wells Fargo, it is better to borrow the money you need than put your health at risk.
Start an Investment
If want to try buying stocks or start a Roth IRA for your retirement, a personal loan can be a good way to jump-start your plans. In order to get the best value for your loan dollars, you should pay your loan off before you start investing. Otherwise, the interest you will pay on the loan will offset your gains. If you are planning to use the money to start a retirement fund, keep in mind that you will not be able to access those funds early without paying penalties.
Purchase a Computer
These days, for many people, a computer is not a frivolous purchase. An increasing number of companies are increasing telecommuting opportunities for their employees. You also may be one of the many people who brings work home with you too. Investing in a faster computer will make your life easier and help you be more productive. A personal loan when you do not have the cash is a much less expensive way to buy a computer than in-store financing.
Buffer Your Checking Account
Unfortunately, many people cut their checking accounts too close and end up paying fees for not maintaining the minimum balance requirement, or even worse, get hit with overdraft fees. As long as you can work the loan payment into your budget, a personal loan can be a great way to add some extra money to your account so you avoid bank fees. However, this only works as long as you leave the money in the account.
It a good idea to avoid getting a personal loan for thing you do not really need like vacations or unnecessary purchases. That being said, there are times where getting a personal loan is a wise decision. Before you borrow money, consider your motivations and make certain that you will be able to repay your loan on time. If you can make your payments without fail, a personal loan can be a quick, efficient solution to some of your problems.
About the Author: Dona Collins is a personal finance specialist who loves to help others find creative ways to manage their finances, eliminate debt, and live healthy financial lives.