With warmer weather signaling the start of spring, it may be time to get your finances in order. Many Americans use personal loans to apply spring cleaning principles to their finances in the form of debt consolidation.
While some choose to rely on a balance transfer credit card with a low promotional rate, others are clearing out the clutter of credit card balances and replacing it with a debt consolidation loan to get the security of a predictable monthly payment and get on your way faster. become debt free.
Those with excellent credit borrow the most on average, using low-interest personal loans as a tool to clean their financial house. Younger generations – especially GenZers – have also increased their use of personal loans year over year. But a personal loan or a credit card with a 0 percent balance transfer will only help if you stick to healthy spending habits.
How a personal loan can help clean your financial house
As the winter months come to a close, take a moment to review your debt load before the busy season of spring break, summer vacations, and back to school begins. A little extra debt planning at the beginning of the year can help you avoid reactive credit decisions when your life is more hectic.
Personal loans aren’t the only option when it comes to debt consolidation, but it is an option that many Americans are turning to.
Consolidate your credit card balances
Consolidating debt is like clearing out a cluttered cupboard or drawer. It’s much easier to find everything in one place, and a personal loan can make it much easier to combine several credit card debts into one easy-to-follow monthly payment with a fixed payoff date.
You’ll get the same fixed payment until the balance is paid off, and you can potentially save thousands of dollars on interest payments compared to continuing to make minimum monthly payments on your credit cards. Now that your debts have been simplified, you can focus your financial energy on other goals, such as retirement savings or adding money to an education fund.
One note to make is that if you have excellent credit and a smaller amount of debt, it may be better to use a balance transfer card with a 0 percent introductory rate than a personal loan. Whichever one you choose has pros and cons, and to successfully fully clean out your finances and keep them clean, you need to avoid adding new balances to the cards you consolidate.
Improve your home without affecting your assets
If you’re considering selling your home this spring or fall, you may want to upgrade some appliances, update your kitchen, or install new flooring so it’s highly visible to potential buyers. A personal home improvement loan can give you quick access to money for home improvements without affecting the equity in your home.
Personal loans are also easier to qualify for, and in some cases you can get the money you need to start your renovation projects in just one business day. That’s much faster than the 30 to 45 days you might wait for money from a mortgage loan, HELOC or cash-out refinance.
How average personal loan balances are broken down by state
The average personal loan balance in 2023 ranged between $12,250 and $30,648 depending on your state, according data from Experian. Some details worth mentioning:
- Residents of the Pacific Northwest states have the highest personal loan debt, with Washington ($30,648) and Oregon ($29,247) topping the list.
- The average personal loan amount is over $20,000 in 17 states.
- In some high-cost states, such as California and New York, average loan amounts are under $20,000.
- Borrowers in the District of Columbia ($12,250) and Georgia ($14,838) have the lowest personal loan rates.
Average personal loan balance by state
It comes down to: People are turning to personal loans at record levels across the country. In the fourth quarter of 2023, 23.5 million Americans had a personal loan, according to TransUnion data. That’s a million more people with personal loans than the record pace of 2023.
Borrowers in two groups have increased their use of personal loans
The use of personal loans had increased in two demographic groups in particular.
Prime borrowers have increased their use of personal loans
Despite an overall decline in personal loan volume, the number of personal loans for prime borrowers increased by more than 14 percent between the third quarter of 2023 and the third quarter of 2023, TransUnion said. Lenders reward borrowers with higher credit scores with lower rates, higher loan amounts and longer terms.
In the third quarter of 2023, those in the “super prime” category – a VantageScore above 780 – took out an average loan amount of $18,000. That’s significantly higher than the average $10,500 borrowed by prime borrowers with scores between 661 and 720.
| Credit score range | Average origination amount |
|---|---|
| More than 780 | $18,000 |
| 721-780 | $15,900 |
| 661-720 | $10,500 |
| 601-660 | $5,500 |
| 300-600 | $2,700 |
Source: TransUnion
GenZ use of personal loans has grown the fastest
The average loan balance grew by more than 15 percent for GenZ borrowers between 2023 and 2023. However, Baby Boomers ($21,644) and Gen Xers ($20,677) borrowed the largest amounts.
Average personal loan balance in 2023 by age and year-on-year change
| Generation | Average personal loan balance | Change from year to year |
|---|---|---|
| Baby boomers | $21,644 | 6.3% |
| Generation X | $20,677 | 9.3% |
| Millennials | $15,101 | 12.5% |
| Silent generation | $18,211 | 5.1% |
| Gen Z | $7,684 | 15.4% |
Source: Experian
it comes down to
Spring is the perfect time to consider clearing out your debt, and personal loans are a valuable tool for achieving this goal. Whether you want to consolidate credit card debt or make home improvements, personal loans offer a predictable monthly payment and quick access to cash.
From prime borrowers to GenZers, people across the country are turning to personal loans to spruce up their finances. Regardless of which tools you ultimately choose, take some time this spring to clear out your accounts before heading out for some summer fun.
