Debt repayment, rather than taking out personal loans to cover the cost of debt consolidation, is gathering speed as a trend among consumers. According to recent figures compiled by Sainsbury’s Finance, a bank based out of Great Britain, only 1 pound in every 50 taken out by consumers is used to pay off debt consolidation, as compared to 1 in every 13 just two years ago. According to the bank, this means that while personal loans for other purposes continue to increase, loans for debt consolidation have shrunk. Consumers are more likely to take out a personal loan for a large single purchase, such as home renovation or a car nowadays.
While this trend has been tracked in Great Britain, it is gaining popularity stateside as well. Financial analysts like Suze Orman and Dave Ramsey have continued to beat the drum for living a debt-free lifestyle for years; the recent recession made that message a lot more relevant for many people who had gotten overextended on credit or were living with an underwater mortgage. So if personal loans are being eschewed for debt consolidation purposes as people choose to pay off debt, what are they still being used for?
Personal Loans for Emergency Medical Procedures
Although consumers are cutting back on unnecessary expenditures in order to become debt-free, there is one area that remains difficult to anticipate or cut back on–personal medical expenses. If you are in need of a sudden procedure that is not covered by your insurance company, or if your deductible is very high, you may need a personal line of credit to cover the costs. Most consumers prefer to use a personal loan to cover medical costs, rather than a cash advance or credit cards, since the interest rate on personal loans is much lower. This makes it possible to pay off your procedure without racking up huge amounts of interest.
Personal Loans for Emergency Repairs
As more and more consumers embrace the debt-free lifestyle, they are choosing to repair things that, ordinarily, they would have simply replaced. For example, more consumers are choosing to repair their cars instead of buying new ones. So how do you afford a sudden, costly repair such as a new transmission or engine work? Often, consumers turn to personal loans to cover these sudden and necessary procedures. You can still remain committed to your debt-free lifestyle if you use the loan wisely and take out the least amount you need. Since they carry a lower rate of interest than a cash advance or a credit card, they remain a viable way to afford repairs without getting over your head in debt.