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Lesko Financial: Reasons Not to Take Out a Personal Loan

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Bryanna: There are good and not-so-good reasons to take out a personal loan. Greg Lesko of Lesko Financial explains the difference.

Greg: Credit reporting bureau TransUnion said more Americans relied on personal loans last year than ever. These are short-term loans from 1 to 5 years in amounts from one thousand to fifty thousand dollars. There was a record number in the third quarter of 2017. Considering the timing, the loans could have been related to an early start to holiday shopping or the beginning of the school year.

Bryanna: What were these loans used for?   

Greg: The number one reason people take out a short-term loan is debt consolidation: Combining credit card balances into one payment and in the best case paying a lower interest rate. But a recent survey revealed that the two biggest reasons people regret taking out a personal loan were to splurge on a shopping spree or go on vacation. The regrets can last longer than the thrill of the purchases… especially if the spender doesn’t pay the balance quickly and lets payments stretch over months or even years.   

Bryanna: What are some alternatives?   

Greg: For an unexpected expense, many of these loans are small enough that a healthy emergency fund could have covered what’s needed. And likewise, the best way to pay for other purchases like a new wardrobe or a vacation to save up ahead of time. It’s always important to make the distinction between “wants” and “needs.” Taking on short-term debt for a dire necessity could be justified. But if it’s to fund something frivolous, you could end up in the company of those who regretted it.