If you wish to remove some of the debt burden of credit cards, you can obtain one of various personal loans. These loans can take the form of title loans (a secured type of financing), unsecured loans, fixed-rate loans, variable rate loans, and debt consolidation loans. Below is an overview of the major types of personal financing.
1. Unsecured Personal Loans
This type of personal loan is not backed by collateral, which makes it riskier for a lender to lend. To ensure that the lender receives their payments, these loans carry a higher rate of interest. Your approval and the rate you receive for an unsecured personal loan will depend on your credit score. Rates can range drastically from as little as 5% to as much as 36%. Repayment terms for this type of financing generally range from one to seven years.
2. Secured Personal Loans
Loans that are secured are backed by some type of collateral. For example, title loans are issued to loan recipients as long as they can provide their car titles as a form of collateral. If you default on the loan, the lender has the right to take title to your car for repayment of the loan amount.
Other examples of secured personal loans include mortgages (with your house used as security or collateral) or loans that are secured by a personal savings account. Because you are using an asset for collateral, these loans carry lower interest rates. Repayment is less risky, so the loan rate is reduced.
3. Fixed-Rate Loans
Most of the personal funding offered online is offered in installments through fixed-rate financing. Fixed-rate loans feature payments that remain the same over the loan’s life. This is the ideal loan to choose if you want to pay down credit card debt as it is often lower than the percentage rates charged on your credit card. Therefore, you can lower your debt and get rid of it more quickly.
4. Variable-Rate Loans
A variable-rate loan charges interest that is set as the current rate by financial institutions. Your monthly payments and total interest expense will fluctuate with this type of personal funding. Variable-rate loans usually feature lower APRs than fixed-rate financing. They may also limit how much the rate changes over a loan’s life.
Choose a variable-rate loan if you want a short repayment period. That way, the rates on the financing may rise but are not likely to accelerate greatly over the life of the loan.
5. Debt Consolidation Loans
This type of loan is the financing most often used to pay down credit card debt. The financing should feature a lower APR than the rates on your credit cards, thereby saving you interest. By consolidating your debts into one loan payment, you make repayment far easier. All the payments are combined into one convenient monthly payment.
While you are paying down the debt, keep your credit card accounts but do not use them. That way, you will maintain a credit history and stay in continual good standing.