Personal loans can come from banks, credit unions, and online lenders. They usually have a fixed repayment schedule and may have a more affordable interest rate than credit cards.
But despite the fact that they can be an affordable type of debt, financial expert Dave Ramsey says it’s “absolutely not” worth taking out a personal loan because of the “stress and financial burden” it entails. type of borrowing can cause.
So what does Ramsey offer as an alternative? Here are three options he says are better than a personal loan.
1. Living on a budget
Ramsey says budgeting is your best bet if you’re relying on personal loans to pay for day-to-day expenses like food and paying bills. “A budget helps you take control of your money by telling your money where to go before you spend it,” Ramsey says.
But while that may be true, the reality is that most people don’t take out personal loans to pay for their day-to-day expenses because it’s not really convenient. Applying for a personal loan can take time, most lenders require you to borrow a minimum of a few thousand dollars, and loans are repaid over several years. And you don’t have access to more money when you start paying them back.
Since people generally don’t plan on having an insufficient budget, applying for a loan of several thousand dollars, and then distributing the money over time to pay expenses, those who need to borrow for their daily expenses would be more likely to use a credit card instead. And since a card can cost more, they’d probably be better off taking out a personal loan if they needed that kind of help.
Living on a budget is definitely a better bet than borrowing to fund your lifestyle — so if that’s something you’re considering, you should heed Ramsey’s suggestion and plan how to spend within your means instead.
2. Save for big purchases
For those borrowing to finance things they can’t afford to pay all at once, Ramsey has another alternative.
“Instead of jumping on the personal loan bandwagon every time you want something, how about taking the time to save for it?” the Ramsey Solutions blog reads.
This advice is definitely good to follow as much as possible. If you borrow to buy things – even with a personal loan that can be relatively affordable – then you’re going to make all your purchases more expensive and it’ll be harder to live within your means later on. You want to avoid this whenever you can.
Of course, sometimes a surprise purchase comes up that you to have to Manufacture. If so, sometimes a personal loan can be a cheaper way to finance it than a credit card. So you’ll want to explore both options to see which one makes sense in this situation.
3. Take a debt repayment plan seriously
Finally, Ramsey suggests taking debt repayment seriously rather than using a personal loan to consolidate and refinance debt. Her favorite debt repayment plan includes saving a $1,000 emergency fund first so you don’t have to borrow once you start paying off your debt. Next, he advises to pay off your loan with the lowest balance first so that you can get quick gains.
While this plan might make sense to many people, it’s not necessarily a bad thing to use a personal loan with a lower interest rate to pay off as much of your low-interest credit card debt as possible. interest or your payday loan debt. A personal loan can lower your interest costs, and it comes with a set repayment schedule so you know when you’ll be debt-free.
So while Ramsey’s alternatives to a personal loan may sometimes make sense, the reality is that a personal loan may be your best option in certain circumstances. Be sure to weigh Ramey’s advice carefully and decide if it really makes sense for you to avoid personal loans as he suggests or if this type of borrowing could help you in the long run.
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