Personal loans could be counter-intuitive

Personal loans could be counter-intuitive

(WWBT) - Credit cards get a lot of people into debt trouble, but now too many Americans are running up a different type of debt.

New data show Americans are now much more likely to turn to personal loans to get them through a rough patch.

The problem is that sometimes that rough patch is self-inflicted.

Credit reporting agency TransUnion reported a record number of personal loans in 2017, and the balances are bigger on those loans as well.

By the end of the year, TransUnion said the average debt per borrower will hit more than $8,400. That's up from $5,900 in 2012.

While some of those loans are for things like debt consolidation, far too many Americans are taking out loans to pay for vacation or to buy new clothes. The biggest problem is personal loans don't use collateral the way a mortgage or car loan does, so the interest rates are much higher - some as much as 36 percent.

That rate is more than double the average interest rate on a credit card, so taking out a personal loan to avoid mounting more credit card debt could be counter-intuitive. There are also fees tacked on top of the loan, and some come with prepayment penalties.

If you're already in money trouble, a personal loan could make things much worse.

A better plan would be to put off that vacation or shopping trip until after you've saved up the money for it.

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