Although taking out a loan and going into debt might seem like a step backward when it comes to financial health, a personal loan can actually have a positive effect when used strategically and responsibly.
If you’re a member of People Driven Credit Union, you have access to personal loans with competitive rates, flexible terms, and personalized support to cover life’s diverse and ever-changing financial needs. Learn more about your options.
Let’s explore some smart ways to use a personal loan to boost your financial health.
What Is Financial Health?
Financial health is a common phrase you’ve probably heard, but what does it actually mean?
Components of financial health can include:
- Income
- Debt
- Savings
- Credit score
- Insurance
- Assets
- Financial plan
Environmental factors—like inflation, cost of living, and job security—can also impact financial health.
Having healthy finances typically means having a stable and adequate income, manageable debt, three to six months of emergency savings, a strong credit score, adequate insurance, assets like a home and retirement accounts, and a financial plan for the future. This can be a tall order for many, and everyone has a different measuring stick for financial health, so this scenario will look different from person to person.
How Personal Loans Can Improve Financial Health
Taking out a strategic personal loan can be part of a financial plan to address the health of your debt, savings, credit score, and assets. If you’re researching whether a personal loan would help you to achieve your goals, consider contacting a financial advisor for help.
Here are four areas where personal loans can boost your financial health.
1. Consolidate Debt
Using the lump funds from a personal loan to pay off multiple high-interest debts—a process called debt consolidation—can be a smart move for your financial health. You could potentially lower your monthly payments, pay less interest, and pay off debt more quickly. Additionally, reducing your credit utilization ratio will help your credit score.
For example, you could go from paying down several variable high-interest credit cards every month to paying on a single fixed low-interest loan every month. It’s simpler and can potentially save you money.
If you qualify for a personal loan for debt consolidation, it can help make debt much more manageable; however, make sure you address the underlying financial issues that got you into debt in the first place.
2. Cover Emergency Expenses
It can take time to build up emergency funds, time that you sometimes don’t have. In fact, 27% of American adults have no emergency savings whatsoever. But life happens whether you have savings or not, so what do you do when an emergency strikes?
Instead of covering the cost with a high-interest credit card or by dipping into a retirement account, explore whether a personal loan would be a good fit. The spread-out repayments and competitive personal loan rates can make covering emergency expenses less stressful. Some lenders, including PCDU, might offer quick cash options as well.
3. Increase Value With Home Improvements
If you own a home, you know it’s one of your biggest assets. Maintaining and improving your house consistently increases its value, which will be important if you ever try to sell. Moreover, you’ll be more comfortable when you can make your house a home.
A personal loan can open the door to home improvements that otherwise might not be possible. Flexible terms can spread payments into monthly amounts you can easily absorb into your budget.
4. Build a Credit Score
Finally, responsibly using a personal loan can improve your credit score and your overall financial health. We mentioned earlier that using a debt consolidation loan can help lower credit card utilization, which will boost your score.
Additionally, diversifying your credit portfolio and building a positive repayment history will improve your credit score even more. We recommend setting up your loan repayments on autopay to build a positive repayment history.
PDCU members can monitor their credit score and discover how specific financial actions, such as paying off debt with a personal loan, could improve their score by using the MyPDCU app and the Score Simulator tool.
Let People Driven Credit Union Help With Your Financial Goals
Taking out a personal loan for strategic reasons can boost your overall financial health in the long run. It could help you consolidate debt, cover emergencies, pay for home improvements, and build your credit score. Don’t forget to work with a financial planner to ensure you’re smart about managing your finances with a personal loan.
People Driven Credit Union members enjoy a wide variety of products and services, including personal loans, personal lines of credit, debt counseling, and more. We’re ready to help you supercharge your financial health with personal loans featuring flexible terms, competitive rates, and no prepayment penalties.
Apply today or contact us with any questions.
