Personal loans have grown in popularity and have become quite common. There’s a reason The Ascent research shows that many Americans have personal loans, and a substantial number even have personal loans. various loans in progress. These loans often come with affordable interest rates, they are unsecured so you don’t have to post any collateral and you can use the money for whatever you want.

But while you can do everything with a personal loan, from financing a vacation to starting a business to financing a wedding, there is only one reason I would consider a personal loan. .

This is the only time I would use a personal loan

The only scenario in which I would take out a personal loan is if I needed the loan to consolidate other debts.

You see, personal loans can be particularly ideal for debt consolidation for a number of reasons. You can borrow a large amount of money, which means you can pay off multiple existing debts and end up with one payment instead of multiple. If you consolidate credit card debt, the interest rate on your personal loan is likely to be much lower than the interest rate you paid on your cards.

Personal loans also have an advantage as a debt consolidation tool, over other options, such as balance transfers. You can get a personal loan with a fixed interest rate and payment over the life of the loan. This way you will know from the start exactly what it will cost you to pay off your debt, how much you will pay each month and when is your debt free day.

If I found myself with a lot of high interest consumer debt because I was overwhelmed with credit card bills or had major medical bills that I couldn’t afford, I would be eager to use a personal loan to simplify the repayment process. , reduce my costs over time and benefit from a defined repayment schedule.

Why I wouldn’t use a personal loan for other reasons

Although I use a personal loan for debt consolidation, I would hesitate to take one for any other purpose for a few simple reasons.

First, I aim to avoid paying interest on purchases that don’t increase my net worth. By taking out a personal loan to finance a vacation, wedding, or other big purchase, I would only be making that purchase Following expensive – rather than cutting costs like I would with debt consolidation. Instead of taking out a personal loan, I would try to save for expenses or just say no to expenses if I couldn’t.

Second, if I had to borrow, I would explore other alternatives. A 0% APR credit card, for example, would allow me to avoid these additional interest charges as long as I could pay off the card before the promotional rate ended. And if I couldn’t, then I could opt for debt consolidation using a personal loan, after taking advantage of a year of interest-free borrowing.

Of course, your situation may be different from mine. You may decide that it is worth getting a personal loan at an affordable rate to buy something expensive that you cannot save or to go on a one-time trip. And as long as you realize that the interest charges are going to make your purchase more expensive and you’ve built the payments into your budget, it’s not necessarily the wrong financial decision.

Just be sure to research the best personal loan rates – and seriously think about whether you’re okay with committing to paying more to finance the purchase you make today.