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  • Writer's pictureJames Heinz

Personal Loan for Debt Consolidation

Updated: May 26

Feeling weighed down by multiple debts? If you're drowning in credit card balances, medical bills, personal loans, and other debts, consolidating them into one personal loan could provide refreshing simplicity for your finances.


Let's examine the key benefits of using a personal loan to consolidate debt. We'll guide you through calculating potential savings and provide tips on choosing the right lender for your situation. 


Simplifying your debt could be only a personal loan away!


Introduction to Personal Loans for Debt Consolidation


Personal Loans for Debt Consolidation

A personal loan to consolidate debt allows you to roll all those individual debts into a new loan. You'll receive one lump sum amount that can be used to pay off all your existing creditors at once. This leaves you with just one recurring monthly payment moving forward, rather than having to make separate payments to various lenders.


The process sounds simple, but it offers significant benefits:


  • You can transfer balances from high-interest credit cards to a lower-interest loan

  • It's easier to manage one payment instead of juggling multiple due dates

  • You'll have a clear payoff goal with the loan's fixed term



Advantages of Personal Loans for Debt Consolidation


Using a personal loan to consolidate debt can offer significant advantages like:


  • Lower Interest Rate: Credit card interest rates are notoriously high. A personal loan typically offers much lower rates, saving you money on interest charges

  • Lower Monthly Payment: Depending on the loan amount and term, your new monthly payment could be lower than your combined minimum payments

  • One Payment Convenience: Instead of multiple payments to various creditors, you'll have just one payment to make each month

  • Set Payoff Date: Personal loans have a fixed repayment period, say 3 or 5 years. This gives you a target date to become debt-free

  • Retire Debt Sooner: With a lower interest rate and fixed payoff date, you can pay down the principal balance faster compared to minimum credit card payments


Choosing a lender or financial service provider that understands your unique financial circumstances is important. Check out Shepherd Outsourcing to get tailored solutions that could align with your goal of consolidating debt to simplify your finances!



How to Use a Personal Loan for Debt Consolidation?

1. Understanding the Use of a Personal Loan to Consolidate Debt

The first step is to get organized and take inventory of all your existing debts - credit cards, personal loans, medical bills, etc. Make a list with the current balance owed, interest rate, and minimum monthly payment for each debt.


From there, you'll determine the total loan amount that covers the combined balances of all the debts you want to consolidate. This lump sum will be used to pay off each of those creditors.


Once approved for the new personal loan, the lender will directly pay the other lenders/creditors to transfer and consolidate your balances. (While some lenders will pay off your debts directly, others may provide you with the loan amount for you to disburse as needed) Ensure that the loan amount covers all outstanding balances to bring your accounts to a zero balance, considering any potential fees.


You are now only responsible for making a single monthly payment toward repaying the personal loan going forward. The loan will have a fixed interest rate and repayment term, providing consistency.


2. Evaluating if Debt Consolidation through a Personal Loan is Beneficial


Not all debt consolidation scenarios will make financial sense. You'll want to calculate the total cost of the new personal loan over its entire term, including fees. Compare this to your existing debts' repayment costs if you continue making current payments.


A debt consolidation loan may be advantageous if:


  • The new interest rate is lower than your current rates

  • The monthly payment amount is lower and affordable

  • You can avoid accruing additional new debts


However, consolidating debt may not be ideal if the new loan costs more over time or the payment is unaffordable. Review your budget carefully and understand the terms.

Deciding whether debt consolidation is right for you can be difficult. Consulting with experts at Shepherd Outsourcing can provide clarity, ensuring your steps toward debt consolidation are in your best financial interest!



Calculating Monthly Payments


1. Using Loan Calculators to Estimate Monthly Payments and Potential Savings

Online loan calculators are beneficial when exploring debt consolidation. You can enter different loan amounts, interest rates, and repayment terms to see how it impacts your potential monthly payment.


For example, if you need to consolidate $20,000 of debt, a $20,000 personal loan with a 12% interest rate for a 5-year term would result in an estimated monthly payment of around $460.

Compare this new payment amount to your current minimum payments across all debts. You'll realize monthly cash flow savings if the consolidation payment is lower.


The calculators also show your estimated interest paid over the entire loan term. This total cost can then be compared to staying on your current repayment paths to assess potential savings.


2. Comparing Loan Amounts, Terms, and the Impact on Monthly Budgeting

Don't just settle on the first loan calculation. Experiment with different loan amounts and repayment term lengths to see the monthly payment impacts.


A lower loan amount but a shorter 3-year term may fit better in your budget than a higher amount over 5 years, even though the total costs differ.


The key is finding the proper monthly payment range you can comfortably afford each month over the term. Maintaining that budgeting discipline is crucial after consolidating debts.



Choosing the Right Bank for Your Personal Loan


When shopping for a personal loan to consolidate debt, consider:


  • Competitive interest rates offered

  • Repayment terms from 3-5 years to suit your needs

  • Fees for loan origination, late payments, etc.

  • Overall trustworthiness and customer service ratings


Taking out a personal loan to consolidate debt can be a savvy way to regain control over your finances. With some research and discipline, you could soon join the many who've successfully used this strategy to eliminate debt.


As you consider your options for a debt consolidation loan, remember that working with a trusted partner can make all the difference. Shepherd Outsourcing not only assists in managing existing debt but can also guide you through finding a consolidation loan that suits your needs, backed by their expertise in providing tailored debt solutions!


Conclusion


Consolidating debts into one personal loan provides a simpler way to pay off your debts. By rolling multiple balances into a single loan with a fixed rate and term, you gain the convenience of one monthly payment on a structured schedule to become debt-free. 


Finding the right personal loan to consolidate debt can lead you to a path of financial freedom. Professionals like Shepherd Outsourcing can provide you with the support and guidance needed to navigate your debt consolidation journey effectively! 


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