Consider this option before submitting your loan application.
- There are consequences to taking on debt of any kind.
- Since side hustles are fairly easy to come by these days, you may want to get one instead of borrowing money.
- By working a side hustle, you can avoid higher interest rates, making debt repayments, and a potential hit to your credit score.
If you need money, you have different options to look at. You could borrow that money via a personal loan, or you could try to work more and earn it yourself, thereby avoiding that debt.
Although there’s talk of an impending recession that could drive US unemployment levels upward, right now, the labor market is still going strong. And that extends to the gig economy.
In fact, now’s a really good time to start looking at a side hustle if you need to increase your cash reserves. With the holidays coming up, we can bet that many businesses will have a greater need for seasonal workers. And that means you may have an easier time finding work you can do on top of your main job.
Discover: These personal loans are best for debt consolidation
More: Prequalify for a personal loan without impacting your credit score
Of course, given that personal loans tend to offer competitive interest rates, you may be more inclined to just apply for one rather than go through the hassle of finding a side hustle — and having to carve out time in your schedule to actually do that work. But here’s why a side hustle really is a better bet right now.
1. Borrowing rates are higher these days
The Federal Reserve has been raising interest rates in an effort to slow down inflation. But that’s made borrowing more expensive across the board. Everything from auto loans to mortgages to personal loans are costing more via higher interest rates, so now’s just not a great time to borrow if there’s a way to avoid it.
2. You won’t have to factor debt payments into your budget
Owing money in any shape or form can be upsetting and frustrating. If you take out a personal loan, you’ll need to factor those payments into your budget and keep up with them month after month until your debt is paid off. If you avoid a personal loan and use a side hustle to get the money you need, you won’t have to deal with those debt payments — and the stress they might cause.
3. You’ll avoid a hard inquiry on your credit report
Any time you apply for a loan, a hard inquiry is done on your credit report. And a single hard inquiry could cause your credit score to drop by a handful of points.
If you have a credit score of, say, 780, that’s not a big deal. But if your credit is poor to begin with, even a minor hit could have consequences, such as preventing you from being able to qualify for a different type of loan, like a mortgage, when you need one. If you use a side hustle to increase your cash reserves and avoid a personal loan, you’ll avoid that hard inquiry.
Don’t rush into a personal loan
A personal loan can be a good way to borrow money when you need it. But if you have the option to just earn the money you need instead, you may want to take it — especially now, given that borrowing has generally gotten expensive, even for loan applicants who have fantastic credit.
The Ascent’s best personal loans for 2022
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing The Ascent’s best personal loans for 2022.