Are Loans Worth It?

If you owe a substantial balance on one or more high-interest credit cards, taking out a personal loan to pay them off could save you money. For example, as of this writing, the average interest rate on a credit card is 19.49%, while the average rate on a personal loan is 9.41%. That difference should allow you to pay the balance faster and pay less interest in total. In addition, it is easier to track a single debt obligation and pay it off rather than several.

Unfortunately, there is no single right or wrong answer to this question. Whether or not pursuing a college degree is worth the costs associated with student loans is ultimately a personal decision that should be based on each person's unique personal and financial situation. Here are five times when you should reconsider applying for a personal loan and instead turning to other options. When evaluating potential colleges and student loan options, consider the overall value of the institution.

For most federal loans, you'll have a six-month grace period before interest and monthly payments begin (this doesn't necessarily apply to private loans). Even if you graduate, get a job and start earning income, college may not be worth it if you're accumulating more debt than you can afford to pay. Most federal subsidized loans don't earn interest while you're enrolled as a part-time student, so there's no reason you can't use excess loans to start emergency saving while you're in college. If you've exhausted all of your federal student loan options because you need more time at school, you may need to use private student loans, which may have higher interest rates.

Ally's online savings account can be a useful way to keep track of your surplus loans and budget your money for the school year and the following year. If you're buying new appliances, installing a new oven, or making another major purchase, taking out a personal loan may be cheaper than financing through the seller or invoicing a credit card. I was helped by the fact that I qualified for a great auto loan rate, better than what I would likely find on a personal loan. In those cases, a personal loan can help you finance repairs to maintain a functional home if the available money doesn't cover all the costs.

Cecilia Clark is a student loan writer at NerdWallet, where she helps readers navigate the college finance landscape. Personal loans are installment loans; if approved, you will receive a lump sum of cash that you will repay in fixed monthly amounts until the loan term expires. If you really need to take out a loan, be smart about it and find the product that makes sense, it won't always be a personal loan. A personal loan is an option if you're looking to consolidate high-interest debt or finance a large expense, such as a home improvement project.

If you intend to work in lucrative fields such as engineering, technology or law, it may be manageable to apply for a larger amount of student loans.

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