Andrea Woroch, nationally-recognized finance expert and Marcus by Goldman Sachs ambassador, says that it doesn’t necessarily mean you’re irresponsible with you’re money if you find yourself in debt. Debt happens.
“Debt is something that happens to a lot of people, and it’s not something you should be embarrassed about,” Woroch says. “We should all open up and talk about it more because it gives us a chance to share tips and solutions that have worked for ourselves. Then we could help other people figure out ways to better manage their debt and get out of it faster.”
Woroch has her own experiences of going through debt after college, and she learned that you don’t need to make huge sacrifices or radical changes to your lifestyle in order to get yourself out of that debt. Instead, you do have the option to take out a personal loan.
Generally 38 percent of credit-worthy Americans find themselves in credit card debt, and 77 percent of credit-worthy Americans who are in credit card debt don’t even know that a personal loan is an option, according to a Marcus survey. Marcus is an online lending platform that helps consumers with good credit (660+) end the revolving cycle of high-interest credit card debt with a fixed-rate, no-fee personal loan, ranging from $3,500 to $30,000 for periods of three to six years.
Can you tell me a bit more about what Marcus by Goldman Sachs?
Andrea Woroch: There are no fees ever — no sign-up fees, no pre-payment fees and no late fees… That’s something that sets them apart from other loan offers out there. A lot of people don’t realize that some lenders could charge up to five percent for a sign-up fee. That means, if you’re applying for a $10,000-loan, you’re only going to get $9,500 — that’s $500 just for signing up. If you’re trying to utilize that loan to pay off your debt, it’s just another hindrance from getting there. The whole idea of a personal loan to consolidate your debt, if that’s what you’re using it for, is to get ahead.
[With Marcus,] you can customize your loan date with your payment date, which I think is so helpful because, if you get paid on a certain day and all your bills are due that day, you might feel more comfortable paying your loan later in the month. And after 12 consecutive months of paying on time, you can defer a payment and there’s no penalty.
When should someone consider exploring debt consolidation options like a personal loan?
If you’re carrying debt across a couple of credit cards and you just feel like you’re not getting ahead… But you do have to have that credit score at 660 or higher. So if you have good credit, this is a viable option to help consolidate debt.
Consolidating through a person loan is going to offer you some relief with that interest rate, too. You’re going to save money consolidating to a personal loan. And you can use Marcus’ saving calculator to see how much you’d save before applying to see if that’s really worth while for you.
Aside from debt consolidation, could you identify other situations in which it'd be smart to take out a personal loan?
Credit card consolidation is definitely a popular alternative to paying high interest rates on credit cards. But let’s say you want to make a big purchase or your water heater breaks, which can cost a few hundred dollars and you might not have that in savings — instead of using a high-interest credit card that you can’t pay off the balance at the end of the month, it might be an instance that you’d want to take out a personal loan.
If you want to make small business purchases or an expansion, those could also be good opportunities to look into a personal loan, which might offer you a better opportunity than small business loans.
Then there are some people who talk about taking out a personal loan when they’re getting married or going on a vacation. The only thing you really want to be careful about is that you don’t necessarily want to pay interest on those kinds of occasions — those you ideally want to save for in advance. But I understand that, when it comes to a wedding, there are some expenses you’ll have to put on a credit card. So it might be a good idea to take out a personal loan to help save money on those expenses that you were going to put on your credit card. It’s just another alternative.
As we see healthcare changing and out-of-pockets growing and deductibles getting more expensive, that’s all a huge financial burden on a lot of families. Using a personal loan can be helpful to pay off unplanned incidents such as health care emergencies.
What should one research and understand before considering taking out a personal loan?
There are lenders who will charge up to five percent, so ultimately it comes down to reading all the fine print, researching and comparing. Don’t just run off to one lender and apply. You want to make sure that you’re getting the best interest rate, that you’re understanding what fees, if any, are being charged and that you’re comparing offers.
It’s important to understand what your payments are going to be, when you have to pay off that entire loan, if there are going to be any late fees, what the interest rate is, what the APR is. And figure out if perhaps it’s better to save to make a big purchase than it is to take a loan out and have it now.
What are the risks involved with taking out a personal loan of any kind?
Any time that you request a line of credit, if you aren’t approved, it could dip your credit score. So that’s something to think about. It’s so important for consumers to be aware of what their credit scores are. I recommend that everyone take advantage of getting their free credit score from all three credit bureaus. This way you understand what is on your report and what your score is — that is all going to play a part in what interest rates you get and if you’ll be approved for the loans that you’re applying for.
What are the benefits of taking out a personal loan?
The best benefits from my perspective, especially if you’re consolidating credit card debt, are that you’re going to get a lower interest rate with a personal loan and it’s a lot easier to manage your payments when you only have one payment at the same time every month rather than a few due at different times throughout the month. That’s when a lot of people get in trouble. They forget when payments are due, the charges on them and what the interest rates are, and they get slapped with late fees, penalties and retroactive interest. That can also ultimately affect your credit score, which can make future borrowing opportunities harder to obtain and more expensive with higher interest rates.
You also know how much is owed every month. It’s not going to be a surprise. And you can’t borrow any more until you’ve paid off that loan. With a credit card, you make your payment but you can still use whatever credit there is left, so that doesn’t limit you or prevent you from digging yourself any deeper into debt.
For a more comprehensive look into what the application process looks like for a personal loan, check out Marcus by Goldman Sachs’ resources here. You’ll be asked for some standard information and Marcus will provide you with some general options — this won’t affect your credit score until you select an option and actually apply with background information like your social security number.
AnnaMarie Houlis is a multimedia journalist and an adventure aficionado with a keen cultural curiosity and an affinity for solo travel. She's an editor by day and a travel blogger at HerReport.org by night.