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Are Balance Transfers the Best Way to Pay Off Debt?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When you’re buried under a pile of debt, you’ll need to go beyond making the minimum payments if you hope to get debt-free as quickly as possible. And with interest rates on an upward swing, it may not be something you can afford to ignore.

This is where balance transfer credit cards come into play. Once you understand how they work, they can be a powerful tool that lets you temporarily pause your interest payments — and chip away at your principal balances faster.

MagnifyMoney tapped the experts to unpack everything you need to know about balance transfers. Here’s how to master the ins and outs of one of the most effective debt repayment options available.

What is a balance transfer?

It’s all in the name. A balance transfer involves taking one or more credit card balances and transferring them to a different card that has a lower interest rate. The ideal situation is to roll everything over to a card that has a 0% APR promotional period. This essentially eliminates the interest for a set period, giving you a chance to catch your breath and, if all goes according to plan, pay off the balance before the interest kicks in.

To pull off a balance transfer, you can either open a new low- or no-interest credit card, or look to your existing cards that you’ve already paid off to see if there are any deals to be had. According to David Metzger, a Chicago-based certified financial planner and founder of Onyx Wealth Management, it isn’t uncommon to find 0% interest rate promotions on your existing cards.

“If you’ve got multiple cards, chances are you get offers like that all the time,” he said.

If not, don’t be afraid to reach out to your credit card companies to see if they have any deals up for grabs. If they don’t, or you don’t have the credit capacity on your existing cards, you can shop online for a balance transfer card.

As for the promotional introductory period, it varies from offer to offer, with the best rates and terms generally going to those who’ve got excellent credit. Those with a minimum credit score of 680 can expect transfer periods that last anywhere from 12 to 21 months. Keep in mind that some offers tack on a balance transfer fee to the tune of 0% to 4%, so it pays to read the fine print.

How balance transfers can save you money

Temporarily eliminating your interest rate can translate to pretty significant savings. Let’s say you have the following open balances, and you pay $100 per month on each:

  • $1,000 with 18.00% APR
  • $2,000 with 16.00% APR
  • $800 with 20.00% APR

If you stay on this path, you’ll shell out $500 in interest and get out of debt in 24 months. But a balance transfer with 0% APR for 15 months will keep that $500 in your pocket. Your monthly payment won’t change, and you’ll also pay off the balance nine months faster. From a numbers-and-sense perspective, it’s a no-brainer.

“You can save a ridiculous amount in interest payments, but the name of the game is to more or less come close to paying the balance off completely before that transition over to that higher interest rate,” Lucas Casarez, a Fort Collins, Colo.-based certified financial planner and founder of Level Up Financial Planning, told MagnifyMoney.

Applying for a balance transfer credit card

As Metzger mentioned, turn first to any existing credit cards that can absorb some new debt. Are there any balance transfer offers available? If not, the best place to search and compare balance transfer offers is online. According to Casarez, the following factors play the biggest role in the kinds of deals for which you’ll be eligible:

  • A good credit score: You won’t qualify for much if your credit score is below 680. At the time of this writing, the longest promo periods with 0% interest were reserved for this bunch. Why? A lower credit score is a red flag to credit card companies that you may be a risky borrower.
  • Reliable income: Your credit score doesn’t stand alone. “You could have the best credit score in the world, but lenders still want to know that you have the ability to pay your bill,” Casarez said.

He adds that folks in retirement, for example, may have a tougher time qualifying for a worthwhile balance transfer since their money may come more from retirement accounts rather than Social Security or pensions. Casarez does clarify, however, that credit card companies typically want to approve you.

“These banks make a lot of money the longer that your current balance is at a higher interest rate,” he said.

Discover it® Balance Transfer

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Rates & Fees

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Discover it® Balance Transfer

Regular APR
14.24% - 25.24% Variable
Intro Purchase APR
0% for 6 months
Intro BT APR
0% for 18 months
Annual fee
$0
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
3%
Credit required
good-credit
Excellent/Good

Barclaycard Ring® Mastercard®

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Barclaycard Ring® Mastercard®

Annual fee
$0
Regular Purchase APR
14.24% Variable
Intro BT APR
0% intro APR for 15 months on balance transfers made within 45 days of account opening. After that, a variable 14.24% APR will apply.
Balance Transfer Fee
Promotional Balance Transfers that post to your account within 45 days of account opening: Either $5 or 2% of the amount of each transfer, whichever is greater.
Credit required
good-credit
Excellent/Good

Wells Fargo Platinum Visa Card

The information related to Wells Fargo Platinum Visa Card has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Wells Fargo Platinum Visa Card

Intro Purchase APR
0% for 18 months
Intro BT APR
0% for 18 months on qualifying balance transfers
Regular Purchase APR
13.74%-27.24% (Variable)
Annual fee
$0
Credit required
good-credit
Excellent/Good

3 questions to ask before transferring your debt

If you’re looking to save money and get out of debt faster, balance transfers are a powerful weapon to have in your arsenal — if you know how to use them wisely. Here’s what to consider before giving it a go.

1. Do you understand why you’re in debt?

This strategy won’t work if you don’t get to the root of why you’re in debt to begin with. What kinds of purchases make up the bulk of your existing credit card statements? Whether they’re living expenses, splurges or surprise pop-up bills, it’s time to revisit your budget to prevent falling into the same patterns again. After your balance transfer is complete, seeing $0 balances on your old credit cards can create serious temptation.

“If you don’t have a plan, balance transfers may be something that allow you to spend even more money, so it could put you further into the hole,” Casarez said. “It’s like a hot potato you’re passing around, but there’s going to come a day when you have to pay up.”

Having emergency savings on hand provides an additional safety net because you won’t need a credit card to see you through your next unexpected bill. Our insiders recommend building a $1,000 mini-emergency fund while you’re paying off debt.

2. Can you pay off your debt before the introductory period ends?

Once your budget and emergency fund are in shape, it’s time to shop around online for balance transfer offers. Ones with the lowest transfer fees and longest 0% introductory periods are the best, but here’s the catch: This strategy only makes sense if you can pay off the balance before that period ends, at which point you’ll be slammed with interest charges on the remaining balance.

Standard interest rates after the introductory promo period ends are generally higher than other credit cards. And if you miss a payment, the credit card company may cancel your promo period.

3. Are you OK with taking a short-term credit hit?

Opening a new balance transfer card requires a hard credit inquiry, which will result in a short-term dip in your credit score. Your score may also take a small hit if the transfer itself uses up more than 30% of your new credit line. (How much you owe accounts for 30% of your FICO score.) But Metzger said it may be worth it if you’re ultimately eliminating high-interest debt faster.

“Your score will improve much faster than it would have had you not engaged in the strategy,” he said. “You take a small step backward for a huge step forward, if you’ve got the discipline to do it.”

Metzger does suggest using caution with balance transfers if you plan on financing a big purchase, such as a mortgage or car, within the next month or two. Depending on your financial health, slight fluctuations in your credit score could prevent you from getting the best interest rates on these purchases.

3 alternatives to a balance transfer

If a balance transfer isn’t in the cards for you right now, there are still plenty of viable ways to get out of debt as quickly as possible. Here are a few tried-and-true debt repayment methods you can put to use today.

1. Debt snowball method

The debt snowball approach prioritizes your lowest balance first, regardless of your interest rates. You make the minimum payments on all your debts while hitting the lowest balance the hardest with any extra income you can spare. Once it’s paid off, you take whatever you were spending there and roll it over to the next lowest balance. Keep on chugging along until all your balances are paid off.

“The nice thing about the debt snowball, and the reason that it tends to be the most effective way, is that you start to have those wins a lot faster when you’re focusing on those smaller balances,” Casarez said.

“You start to build up some momentum and confidence,” he added. “As you do that, you start to get a little bit more swagger and feel like you’re actually making progress and have more control over your financial situation than you thought.”

2. Debt avalanche method

This strategy puts your highest-interest balance above all others. When you compare it to the debt snowball method, it’s the fastest and cheapest way to get the job done, which is why Metzger said it makes the most sense.

“With that being said, people are quirky,” he added. “If paying down the lowest balance and snowballing it that way works for you, then by all means do it. The outcome is far more important than the path you take to get there.”

3. Debt Consolidation loan

Another way to tackle your debt is to consolidate it using a personal loan. Once you receive the loan amount, you use the funds to pay off all your debt, at which point you’ll have one new balance and monthly payment. This strategy is ideal for those who can lock down a lower interest rate. What’s more, personal loans often have fixed rates, monthly payments and repayment timelines, so it makes budgeting a whole lot easier.

And since it’s a lump-sum installment loan — not a revolving credit line in which you can charge and pay off as you go — using it to eliminate credit card debt should boost your credit score because you’re effectively using less available credit. Some personal loans do come with an origination fee, typically between 0% and 6%, so do the math to see if it’s the right debt consolidation method for you.

When shopping for a debt consolidation loan, it’s best to compare your option to make sure you get the one with the lowest interest rate. LendingTree, the parent company to MagnifyMoney, allows you to compare up to five lenders without affecting your credit score. Use our table below to get the best results!



Compare Debt Consolidation Loan Options

Which is the best way to pay off debt?

It all depends on your situation. If you’ve got a solid credit score and qualify for attractive balance transfer offers, it’s worth exploring — as long as you don’t charge new debt and you’ve got a plan in place for paying off the balance before the introductory period ends. When done right, balance transfers are great shortcuts that could save you a significant amount of time and money in the long run.

The debt snowball and avalanche methods are worthwhile alternatives for those who prefer to get out of debt the old-fashioned way. Meanwhile, a debt consolidation loan could pave the way for a locked-in lower interest rate. The main takeaway here is that you have multiple debt repayment options at your fingertips. They’re all, as the old saying goes, “Different paths up the same mountain.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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6 Affordable Fitness Ideas to Try in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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New Year’s resolutions follow a familiar trend. The top goals going into 2018, according to a YouGov poll, were: eat healthier, get more exercise, and save more money. In other words, our health and our finances go hand in hand.

A fresh, new year is right around the corner, making it the perfect time to update our fitness goals and establish healthy habits that stick — without breaking the bank. In the spirit of budget-friendly new beginnings, we hunted down six affordable fitness ideas to try in 2019.

First things first

Before you drop hundreds on a pricey gym membership, check these items off your to-do-list:

Get your budget in order: Most fitness routines involve some level of investment. (You won’t get much out of long distance running without proper sneakers and appropriate clothing.) Leigh-Ann Webster, a certified personal trainer and Executive Director for the International Consortium for Health & Wellness Coaching, says to look at your budget to determine how much you can reasonably afford to spend on your fitness goals.

“If someone goes to Starbucks every day and gets a pumpkin [spice] latte that costs $4.50, right there that’s $20 a week,” she told MagnifyMoney. “That $80 a month is potentially a gym membership, or a new pair of shoes or new running clothes.”

Not sure what you can afford? Begin by tracking your spending and rehabbing your budget.

Pinpoint your fitness personality: Once you know how much you can spend without financially stressing yourself out, it’s time to find fitness activities that really pique your interest. According to Chris Gagliardi, a certified personal trainer with the American Council on Exercise, your motivation and your personality play the biggest roles.

“If you know that doing yoga helps with reducing stress and stress reduction is your goal, but the idea of yoga just doesn’t appeal to you, then why even pick that as an option?” he told MagnifyMoney. “Let’s find something you’re actually willing to do that’ll also move you toward your goal.”

The takeaway: understand what motivates you, then zero in on fitness activities that gel with your personality and lifestyle. If your exercise regimen feels like torture, you’re more likely to quit (and take your financial investment down with you).

6 Affordable fitness ideas for 2019

We tapped the experts. Here are six super budget-friendly fitness ideas to explore in 2019.

Body-weight exercises: This is exactly what it sounds like—exercises that leverage your own weight. Put it another way: your body is really the only piece of equipment you need. Planks, push-ups, sit-ups and squats are great examples, and they can all be done for free at home. It’s also easy to dial up your efforts without spending a ton.

“Generally speaking, weights are a dollar a pound, so you could invest in 10-pound weights for $10,” added Webster. “What one-time investments could you make for certain activities; a bike, running shoes, weights?”

If you’re looking to zero in on body-weight exercises, you can find reasonably priced pull-up bars and ab wheels at most sporting goods stores. Not sure what body-weight exercises are right for you? The American Council on Exercise has published an exhaustive list of no-equipment exercises you can do wherever you like, assuming you’re able to lift your own weight. IDEA Health & Fitness Association has similar suggestions, complete with free printables. And for less than $7 a month, the Sworkit app will customize at-home body-weight workouts just for you.

Walking: Gagliardi expects walking to take center stage in 2019, and the American College of Sports Medicine backs him up. According to a recent survey, outdoor activities like group walks and hikes are among the top fitness trends right now. And aside from a good pair of shoes, you don’t need to spend much to take it up as a practice.

There’s also something to be said about group walks. In one study published in the Journal of Consulting and Clinical Psychology, a whopping 95% of people who started a weight-loss program with friends went on to complete it. What’s more, 66% maintained their weight loss in full. Accountability is no small thing. Partnering up with like-minded friends could be a game changer.

Running: The financial barrier to entry with running is low, but it does require some level of investment.

“If I’m going to start running, it’s not going to be as enjoyable if I’m not properly prepared,” said Gagliardi. “Having some skin in the game—even if it’s a $40 pair of shoes—means you’ve invested something, and that’s going to make you more comfortable.”

Going beyond footwear, you’ll also want to make sure you have weatherproof clothes for outdoor running. Alternatively, shopping around for a decent used treadmill is a one-time investment option if paying for a regular gym membership isn’t in your budget. Either way, taking up running could be the healthiest thing you do all year—a 2017 report published in Progress in Cardiovascular Diseases found that runners live roughly three years longer than non-runners.

Basketball: Basketball is a heart-pumping aerobic activity that burns anywhere from 240 to 355 calories for every 30 minutes of play, according to Harvard Medical School. Again, don’t forget about the power of accountability. The only way to really get your blood moving is through a group game.

Finding friends to play with a few times a week could go a long way for your emotional well-being, as well. A recent study published in The Lancet Psychiatry found a link between playing group sports and improved mental health. The best part? You don’t have to look further than your nearest public park for a free basketball court.

Small group fitness: When it comes to getting in shape, a little bit of social support may be good for both your health and your wallet. Personal trainers charge anywhere from $10 to $50 per hour, according to the National Federation of Professional Trainers. The truth is that rates vary widely depending on where you live and how much experience the trainer has.

This is why Gagliardi says more and more people are splitting the cost with friends. Instead of one-on-one sessions, trainers or yoga instructors are taking on small groups where everyone chips in.

“Personal training is probably the most expensive service you’re getting at a gym, but those lines are blurring a little between personal training and group fitness,” he said.

Gym memberships: Gyms push membership deals hard in January. Gagliardi suggests shopping around and comparing rates to get the most bang for your buck. You can also take advantage of free trials to get a feel for what it’s really like.

“If a friend or family member has a gym membership, a lot of times their gym will include an option to bring a friend for free because they’re hoping that person will end up singing up,” he said.

You may be able to cut your costs by opting for a family membership or leveraging student or military discounts, depending on the gym. And be sure to check out your local YMCA, as many branches offer financial assistance for memberships. This YMCA just outside Raleigh uses a sliding fee scale based on your total household income and the number of household members looking to join.

No matter where you go, be on the lookout for places that charge excessive registration or cancellation fees. Then again, that could end up working in your favor—it’s built-in motivation to continue chugging along when you feel like quitting.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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What Is a Signature Loan?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

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Emergencies happen, from unexpected car repairs to pop-up medical bills. This is why financial experts suggest building up an emergency fund that’s specifically earmarked for these kinds of hiccups.”The general rule of thumb is to save three to six months’ of living expenses because if you have that money set aside when something happens, you won’t have to worry about it,” Clint Haynes, a Missouri-based certified financial planner, told MagnifyMoney.

Learning this lesson a little later in the game? Don’t sweat it. It’s more than possible to unlock quick cash when you’re in a pinch.

Enter signature loans (a.k.a. personal loans). This type of fast financing can come to the rescue when funds are tight and you need to see your way through a financial tough spot. (They’re also ideal for consolidating high-interest debt and saving big time in interest charges.)

Unlike secured loans that are collateralized by an asset like your car or your house, these unsecured loans are backed only by your signature. When in a financial bind, signature loans are fast, convenient, and can be used for virtually anything.

How a signature loan works

Because there’s no asset to back up the loan, a signature loan is generally harder to qualify for in comparison to a secured loan. Lenders are looking to protect themselves from borrowers who might default on their payments, so a strong credit score is a non-negotiable. This is also why signature loans generally come with higher interest rates; however, those rates are typically lower than on most credit cards.)

The application process itself isn’t quite as involved as applying for a secured loan. Once the funds are deposited into your bank account, a two- to five-year to repayment timeline is pretty standard.

Signature loans also have fixed interest rates, so they’ll never fluctuate. The same goes for your monthly payment — in other words, it’s an installment loan that you pay back every month. This is different from credit cards, which offer revolving lines of credit you can charge up and pay off as you go.

Who should consider a signature loan?

When you need money fast and don’t have sufficient cash reserves on hand, a signature loan is generally a cheaper alternative to racking up high-interest credit card debt — a serious wealth killer that can cripple your ability to save for other big-picture financial goals, like putting money away for retirement or saving for a down payment on a home.

“I’d look at [a signature loan] as a lender of last resort where you’re really stuck between a rock and a hard place,” said Haynes. “Your only options may be to take out a credit card that’s going to charge you a 20% to 25% APR, or a signature loan where you’ll hopefully get a more favorable interest rate in order to bridge the gap.”

Signature loans can also be a powerful tool for getting ahead of your debt once and for all. Let’s pretend you have $12,000 in debt spread across three different credit cards:

 AmountInterest rateMonthly paymentMonths in repaymentTotal interest paid

Debt #1

$4,000

22%

$100

73

$3,275

Debt #2

$5,000

19%

$200

33

$1,415

Debt #3

$3,000

23%

$150

26

$819

At this rate, you’ll cough up over $5,500 in interest alone — that’s on top of the $12,000 you already owed! But look what happens if you pay off all this debt using a three-year personal loan with a 10% APR.

 AmountInterest rateMonthly paymentMonths in repaymentTotal interest paid

Personal loan

$12,000

10%

$387

36

$1,939

This option actually reduces your monthly payment from $450 to $387. The kicker? You’ll pay $3,570 less in interest over the life of the loan!

“You can often get a lower interest rate, which means every monthly payment makes a bigger dent in your loan balance,” Justin Pritchard, a Colorado-based certified financial planner, told MagnifyMoney. “Plus, there’s an end date, whereas credit cards can drag on forever if you only pay the minimum.”

Pros and cons of a signature loan

A lot of moving parts come into play, but here are some general pros and cons to consider.

Pros

  • Quick cash: When your car breaks down or your roof springs a leak, time is of the essence. Most people simply can’t sit around and wait until their tax return comes in or that work bonus hits their bank accounts to pay for the damage. Signature loans are fast and convenient, especially for those who don’t have any assets to use as collateral.
  • Easy application process: Thanks to the internet, there are a number of online lenders who’ve majorly streamlined the application process. A few clicks on your laptop or smartphone is all it takes to generate personalized quotes in a matter of minutes. Even if you go to a brick-and-mortar bank or credit union, applying for an unsecured personal loan is a relatively pain-free process. Secured loans like mortgages and car loans, on the other hand, are way more in-depth and time-intensive.
  • Ideal for consolidating high-interest debt: Debt with sky-high interest rates will keep you chained to your balances for longer, and charging you dearly for it. A signature loan can be a game changer that reduces your interest rate, and maybe even lowers your monthly payment. And since this strategy also significantly decreases your open credit card balances — which makes up 30% of your FICO Score — your credit score will also enjoy a nice little boost.

Cons

  • Signature loans aren’t free: Lenders aren’t going to give you something for nothing — on top of the interest rate, some lenders tack on an origination fee to make the deal worth their while. Average origination fee rates currently range anywhere from 0% to 6%. Even so, if you’re in dire straits or staring down excessively high credit card rates, an origination fee may be worth it.
  • You have to have really good credit: The stronger your credit, the better your interest rate. It’s not that signature loans are off the table otherwise — there are plenty of lenders willing to work with people who have less-than-perfect credit — but you can expect to pay more. Those with a score below 600 may be looking at APRs upwards of 35%.
  • You might just be kicking the can down the road: If you don’t have healthy financial habits in place (sticking to a budget, avoiding high-interest debt, and routinely putting money into savings), a signature loan may be nothing more than a Band-Aid. “Consolidating or refinancing doesn’t eliminate debt — it just moves it somewhere else,” said Pritchard. “Until you address the cause of your debt, it’s likely to come back.”

How to qualify for a signature loan

If this type of loan is on your radar, be prepared for lenders to pick through the following:

  • Your credit score: Pritchard warns that a low credit score creates a very real barrier to approval. “You can look into using a cosigner, which might be risky for the cosigner but works out for the borrower because if they don’t have the credit score on their own, they’re either not going to be approved, or it’ll be at a higher rate or a smaller amount.”
  • Your credit history: Lenders will also pore over your credit history. Haynes says that a track record of late payments or delinquent accounts could very well come back to haunt you, even if your score has since rebounded. Your current debt load is critical, as well — the less available credit you have, the less likely you’ll be to get the best loan terms.
  • Your employment and income: This is another biggie, because you’ll need to prove that you’re bringing in a reliable, steady stream of income. Remember: lenders have no asset here to repossess, so they want to make sure you’re in a position to repay this loan. “They’re wanting to make sure you’ve got the wiggle room in your monthly cash flow to be able to pay whatever the principal and interest amount is on a monthly basis,” said Haynes. “So they’re definitely going to look at your income very closely to determine if you can make it work or not.”

Where to find a signature loan

Think a signature loan sounds right for you? If so, it’s time to shop around and compare quotes so you can lock down the best deal. Here are the most common places to find lenders.

Online Lenders

MagnifyMoney’s personal loan marketplace is a great place to start. Simply punch in how much you’re seeking, along with your credit score and zip code, and you’ll have instant estimates to browse through.



Compare Signature Loans

Pros

  • The convenience factor is tough to beat: Shopping around online has become more and more mobile-friendly. These days, you can browse through personalized rates on your smartphone without ever getting off the couch.
  • There’s a lot of variety: You may come across traditional financial institutions, as well as peer-to-peer lenders. These platforms connect borrowers with individual investors interested in loaning out money. Finding the best deal requires shopping around and comparing quotes across the board — the internet certainly makes this task easier.

Cons

  • There are some shifty lenders out there: The internet also has no shortage of scams, no matter what you’re shopping for. Predatory lending is a real threat, so be sure you’ve thoroughly vetted your lender before doling out your personal information.

Banks

Prefer to work out the lending details in person? You may also be able to find a personal loan at your local bank.

Pros

  • You’re getting an in-person experience. “At a local bank or credit union, you may be able to talk to the person evaluating your loan application,” said Pritchard. “Instead of meeting automated approval criteria, you can explain your finances and your circumstances in a way that makes sense for the bank. If everything looks good, you’ve got a better chance of approval.”
  • All your finances are in one place: If you choose to borrow from the same bank that has your checking and savings accounts, your finances will all be at one place. That could make it easier to keep a bird’s eye view on your money.

Cons

  • Your options may be limited. Many online platforms generate a variety of personalized quotes that you can then sift through and compare. Going with a single bank means you’re only looking at its loan options, so shopping around becomes much more cumbersome.
  • You’ll probably spend more: Going to your local bank branch instead of an online lender is kind of like going to the mall instead of ordering on Amazon. Online businesses don’t have rent to pay, so their overhead costs are much lower — and they tend to pass those savings on to customers, which is what makes them so competitive.
  • It’s usually tougher to get approved: Big banks have more to lose, so their qualifying criteria for a signature loan is generally more rigorous than an online lender. Many big-name financial institutions require even higher credit scores to get approved. They’re also known for having lower caps on how much they’ll lend.

Credit unions

Local credit unions should also be on your radar. Here’s what to consider:

Pros

  • They might have more reasonable rates. Credit unions are generally structured in a way that exempts them from having to pay state and federal taxes. As a result, you may be able to find a lower-rate loan than what’s being offered at large banks.

Cons

  • You have to be a member. Every credit union has its own membership requirements, so be sure to check their website before taking the time to visit in person. Some, for example, may be sticklers regarding the type of job you have and your employment status; others may require you to pay a membership fee.
  • Selection might be limited. Depending on where you live, it might be slim pickings where credit unions are concerned. Gathering personalized quotes and shopping around may prove difficult, especially if you don’t qualify for a membership.

How to compare signature loans

Once you’ve got some personalized quotes in hand, it’s time to do some comparison shopping to make sure you get the very best deal.

Annual percentage rate (APR): The APR provides a clearer snapshot of how much this signature loan is going to cost you. It goes deeper than just the interest rate, taking into account fees and other one-time costs. When comparing quotes for signature loans, plug the numbers into MagnifyMoney’s Personal Loan Repayment Calculator to see how much you’ll pay in interest over the life of the loan.

Term length: A longer loan term translates to a lower monthly payment, which could provide some much-needed breathing room in your budget, but proceed with caution.

“You may end up paying quite a bit more in interest if you opt for a longer term,” warned Pritchard. “A little bit more pain in your monthly payment will result in less total interest and a lower cost of whatever you’re paying for.”

A $5,000 personal loan with a five-year repayment period and an 8% interest rate will cost you $101.38 a month. If you compress that timeline to three years, your monthly payment will only go up by nearly $56, but you’ll pay $442 less in total interest.

Fees: Again, some signature loans throw in origination fees to the tune of 0% to 6% — but there are other fees to look out for, as well. When comparing different quotes, read the fine print to see if there are any prepayment penalties. If you choose to eventually accelerate your payments to pay it off ahead of schedule, will you be penalized for it?

Conclusion

Signature loans are ideal for people who are up against some sort of unexpected financial emergency and don’t have the cash savings to cover it. This type of financing can also be a powerful debt consolidation tool.

When it comes to getting approved, your credit history, employment, and income are crucial. Gathering personalized quotes is as easy as surfing the web or popping by your local bank or credit union. No matter which option you choose, be sure to shop around to make sure you’re getting the best deal possible.

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Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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