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The fastest growing category of consumer debt in the US right now is not credit card debt. And no, it’s not student loans either.
According to data from TransUnion, personal loans are now the fastest growing form of consumer debt.
Usually an unsecured loan from $1,000 to $100,000 and up, a personal loan comes with fixed or variable interest rate that is usually used to make a large purchase or to consolidate debt.
In the past year, 34% of Americans have taken out personal loans. That’s nearly 83.5 million people!
The top reasons people are taking out loans?
1. Vehicle expenses: 31%
2. Bills: 26%
3. Emergencies: 21%
4. Tuition: 19%
5. Consolidating Debt: 15%
According to stats, Gen X-ers are the largest group of borrowers, with an average personal loan of $8,592. Florida, Texas and California are the states where people have taken the highest number of personal loans.
What is leading to this growth?
There are several factors that have fueled the growth of personal loans including more online lenders and the advancement of technology. Access to personal loans used to be limited to banks and higher yield lenders, however with the surge of online lenders, personal loans have become more accessible.
Online lenders accounted for 36% of the total personal loans taken last year, compared to just 1% in 2010 according to TransUnion.
Technology has also made it easier to apply and receive funding (it can now happen within days) from banks or online lenders, leading to more loans being approved.
Should you use a personal loan to pay off credit card debt?
If you’re feeling strangled by thousands of dollars in credit card debt, a personal loan may give you a lower interest rate and help you pay it off faster. Online lenders will typically let you apply for a debt consolidation loan which won’t impact your credit score.
Some pros and cons to consider when deciding whether to get a debt consolidation loan:
- Fixed interest rate and monthly payment
- Fixed payment period
- May be able to roll all of your bills into one loan with a lower monthly payment and interest rate
- Easy to apply for
- Lowest rates for those with excellent credit
- May carry an origination fee
- Using personal loan to pay off credit card debt leads to more debt (essentially you are just transferring debt)
One of the companies that is worth looking into for a debt consolidation loan is Payoff. A Payoff loan allows people to consolidate several high interest credit card payments into one monthly loan payment. The monthly payment is fixed, and there are no late fees.
If you are considering taking out a personal loan, make sure to request quotes from multiple trusted lenders. And remember, lenders want your business so ask questions and request all the necessary information you need for clarification. Negotiate for lower rates and lender fees to save as much as you can.
Feature Image: Unsplash
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