Taking out a personal loan? How to avoid overborrowing.

Core Insights - Personal loans are flexible financial tools that can be used for various expenses, with nearly 25 million people having outstanding personal loans in 2025, averaging around $12,000 per borrower [1] Group 1: Benefits of Personal Loans - Personal loans provide quick access to cash for needs such as debt consolidation, emergency expenses, or necessary repairs [1] - The convenience of personal loans can lead to overborrowing if not managed properly, highlighting the importance of having a clear plan [2][3] Group 2: Risks of Overborrowing - Overborrowing can lead to financial strain, making it difficult to afford essential expenses like rent and utilities [6] - High interest rates on personal loans can result in significant additional costs, with a median APR of about 21% in 2025, potentially reaching 35% or more [6] - Increased debt can negatively impact credit scores, leading to higher balances and potential delinquency [6] Group 3: Strategies to Avoid Overborrowing - Assess actual needs before taking out a loan to avoid unnecessary borrowing [4][5] - Explore alternative financing options before resorting to personal loans [5] - Calculate affordability using debt-to-income (DTI) ratios, aiming for a DTI of 35% or less to maintain financial stability [8][10] - Shop around for competitive loan rates and terms to minimize borrowing costs [11] - Stick to a repayment plan and consider additional income sources to manage debt effectively [12] Group 4: Red Flags of Overborrowing - Warning signs include only being able to afford minimum payments, repeated debt consolidation without progress, decreased credit scores, and qualifying only for high-interest loans [13][16]