I have often seen the term “personal loan” and wondered what it referred to. Could I get a $1000 personal loan to go on a cruise? Could I get a $5000 personal loan to buy a whole new wardrobe like on What Not To Wear? and should I? What are the benefits? the negative effects? etc. And the questions continued. The answer to the first two questions is yes. You can apply for and get a personal loan for any reason. You don’t usually have to specify what you will be using the money for. The answer to the third question is absolutely not. The negative consequences of getting this type of personal loan, far outweigh the benefits.
As the economy has been below what we’re used to the past couple of years people’s financial problems have gotten worse; however, we’re used to a certain lifestyle and it’s hard to give it up. Before the economy crashed I often saw home equity loans advertised as a wonderful way to pay for that dream vacation, or even a new car. Basically consumers were encouraged to take advantage of the equity in their house to pay for non-essentials. Now, non-essentials and luxuries are not bad. However, obtaining them before we actually have the money to pay for them is. Part of the complicated reason the economy recently fell was that to much credit was given to too many people.
Again, credit is not bad, it is even essential to our society, but being wise with it is very important. Personal loans are now a tool people use who have poor credit to cover emergency expenses and unnecessary wants. The much better way is to set up a budget and establish an emergency fund. This will involve less spending in the short term, but the peace of mind and satisfaction in the long run are well worth it. Anyone can save $5 a month.