Having multiple unsecured debts, such as: unsecured loans, personal overdrafts and credit card debt can complicate family finances. An increasing number of borrowers are choosing to consolidate debt with a low APR personal loan in order to reduce monthly repayments and make life easier.
Credit Card Debt Has No Defined Term
Credit card debt is not only a high APR source of borrowing, there is no defined term. This means that credit card debt can last indefinitely, especially if only the minimum monthly payment is made. Switching to a low APR personal loan makes family finances more affordable and can help prevent money problems.
High APR Debt Vs Low APR Debt
Credit card debt and personal loans are notoriously expensive ways of borrowing money. The rate of APR on credit card debt and personal overdrafts is regularly around 20%. However, it is possible to consolidate debt with a personal loan charging 8.5% APR if good credit exists.
Personal Loans Help to Lower Monthly Repayments
Those choosing to consolidate debt with a low APR personal loan are likely to find that monthly repayments are reduced. Making the minimum monthly payment on high APR personal overdrafts or credit card debt is costly. As well as reducing the term, a personal loan will lower monthly payments.
Simplifies Family Finances
Having multiple borrowing sources can be a complicated business, but those choosing to consolidate debt with a personal loan can simplify family finances. Instead of making the minimum monthly payment on several credit cards, unsecured loans and paying the personal overdraft, it makes a lot more sense to consolidate debt and make a single payment on a low APR personal loan.
Rising Interest Rates of Personal Loans
The risk of loan default has led to many lenders increasing the rate of APR on personal loans. With unemployment levels projected to increase over the next 12 months, it makes sense to lock-in to a fixed-rate personal loan before interest rates increase further.
According to Moneysupermarket.com, “The average rate a borrower pays on a £5,000 personal loan has risen from 7.92% in the first week of September to 8.44% now.” This means that the difference between Bank of England base rates and the rate offered by the average lender currently stands at 6.44%. It stood at only 2.92% just a few months ago.
Unsecured Personal Loans VS Secured Loans
Those with bad credit should try to avoid turning unsecured debt, such as credit card debt, into a secured loan. This provides lenders with far greater powers to collect their money in the event of loan default. Those struggling with bad credit and high personal debts may be better advised to pursue a debt solution, such as an IVA or debt management plan.
Provided a borrower has good credit, a personal loan can simplify family finances greatly. Reducing monthly repayments serves to help those with money problems. It also means that, unlike with credit card debt, the debt does come to an end provided repayments are made each month.