Things to consider before applying for a loan

Sometimes it seems like there is only one answer to your financial issues, but this is not always the case. When it comes to money, there are many alternatives.

You may be considering applying for a loan in order to make a large purchase or consolidate your debts. In these tough financial times, it can make sense to do the latter.

However, a loan is not the only way out of financial problems. Another way would be to use bad credit credit cards that can also help you rebuild your credit score.

Since the global economic recession began in 2007, the world has felt the consequences. House prices have fallen, unemployment has risen and many homeowners have lost their homes to foreclosure and bankruptcy.

To make matters even more challenging, the cost of everyday items has risen as well. Many people are finding it hard to live day-to-day as food staples such as bread and meat have risen in price.

Recent industry research suggests that the average American family is around $118,000 dollars in debt and this figure is rising daily, as the effects of the recession dig deeper into everyone’s lives.

Many people are using credit cards to survive and the Federal Reserve stated that almost 610 million credit cards were in circulation in the United States during 2010.

Each cardholder has on average 3.5 cards and it is not unusual to have many more. Juggling the cards and keeping up with repayments can be stressful and challenging.

If you are considering using a loan to pay off these and other debts, there are both advantages and disadvantages. Loans generally have to be of a higher value, with repayments spread over a longer period of time.

Loan terms and conditions tend to be inflexible, so you are tied into a fixed rate of return or time. This makes what looks like a good deal today a milestone around your neck in the future.

This simply means that you can be paying a considerably high interest rate, known as Annual Percentage Rate (APR), even when the amount you owe has been reduced to a minimum.

Often times, the lender will impose early repayment penalties, so if you did want to overpay due to a change in circumstance, you will be penalized for doing so.

A useful alternative can be a credit card that is designed for individuals with bad credit ratings. These bad credit credit cards be used to consolidate all your debts.

One of the advantages of this card is that it is designed for people in circumstances such as yours. The aim is to help you pay off debt easily and rebuild your credit score.

The initial APR, just like a loan, can be high, but the difference is that it will be reduced in time providing you pay your monthly amount on time and consistently.

So as your overall debt amount decreases, so does the interest rate, meaning you save more money overall. It also rebuilds your credit score so that in the future, you are able to access more financial products at better rates of interest. Consider this option before applying for a loan as it may just be perfect for you.