Rising prices due to tariffs may leave you feeling uneasy. Maybe you’re already preparing by re-evaluating your budget and finding ways to increase your income to help pay for expenses.
Another option to consider is to take out a personal loan.
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Yes, it’s not the best choice for everyone, but leveraging personal loans may be a way to beat price hikes that could be looming on the horizon. Here are three ways where it could help.
Decrease Credit Card Debt
While your debt won’t necessarily be directly affected by tariff-driven price hikes, lowering the amount of interest you pay could help you afford higher priced goods and services. A debt consolidation personal loan is a common way consumers lower the amount they pay in interest.
Even slashing 1% off your interest rate could result in thousands of dollars worth of savings over time.
Think about it: The average credit card interest rate is around 20%, per Consumer Financial Protection Bureau, whereas personal loans average as low as 12%, according to Experian. Hopefully there’s no need for the potential 10% difference that could significantly lower your monthly loan payments.
How a debt consolidation works is that you take out a personal loan, and use the loan proceeds to pay off your credit card balances. You now have one loan, ideally at a much lower interest rate.
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Build an Emergency Fund
If you consolidate your debt, you could use the money you’re no longer using to pay interest to start building or increasing your emergency fund. These funds are meant to be used during an emergency, like an unexpected car repair or if you suddenly lose your job.
A higher emergency fund may come in handy, especially if expenses will significantly increase. For example, if you’re worried about losing your job, having a larger emergency fund will help you sleep better, knowing that you’ll have money set aside for several months’ worth of necessities.
Buying Extra Supplies
Stockpiling isn’t generally recommended since you could end up overspending and stretching your budget too thin. However, if you know that the items you use regularly could raise prices soon, you could leverage a personal loan to help you purchase more of these items to save money.
Before doing so, take a good look at the interest rate you’ll pay on the loan and compare it with how much it’ll cost to buy it at the new price. In some cases it may not be worth it.
Before Taking Out a Personal Loan
Even though there are many benefits to personal loans, it’s important that you assess your individual financial situation first. If your credit score isn’t exactly something to brag about, for example, you may not qualify for an interest rate that’s much lower than your credit cards.
If so, you may not see that much savings. There are also lender fees you may need to pay, which could also offset any potential savings.
What’s more, consolidating credit card debt doesn’t mean that you’ll automatically stop using those credit cards. And if you do, you could end up in more debt. Take a step back, run some numbers and be realistic about your current financial habits to see whether a personal loan will truly benefit you.
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This article originally appeared on GOBankingRates.com: 3 Ways To Use a Personal Loan To Beat Tariff-Driven Price Hikes in 2025
