Could a Side Hustle Help You Avoid a Personal Loan?

If you don't need money right away, saving up side hustle earnings could be a better bet than getting a personal loan.

When you need money quickly, a personal loan could be a great solution. Unlike mortgages, which can take many weeks to close on from the time of your application, personal loans can often close within days. And so if you're in a pinch -- say, your car needs repairs and you're stuck at home until those happen -- a personal loan could be a good way to get money in your pocket.

But if you don't need a personal loan for a pressing matter, then it could make sense to avoid borrowing money, take on a side hustle, and save up the money instead. Here's why.

Borrowing rates are up

The Federal Reserve has been desperate to slow the pace of inflation and give cash-strapped consumers some much-needed relief. As such, it's been implementing aggressive interest rate hikes with the goal of making borrowing more expensive. 

The logic there is that if consumers have to pay more to carry credit card balances or take out loans, they're apt to start spending less. And once that happens, supply chains can catch up to demand, helping to slow inflation.

But because of recent actions by the Fed, it's gotten more expensive to take out a personal loan (or any other type of loan, for that matter). If you don't have an urgent, immediate need for money, you may be better off avoiding a personal loan and saving up the cash you require instead.

Since inflation is making living costs so expensive, simply cutting back on everyday spending may not help you reach your savings target at a reasonable enough pace. But that's where a side hustle could come in.

If you pick up a second job, you can use all of your earnings from it (minus what you owe in taxes) to save up for whatever it is you need a personal loan for. And that way, you can avoid taking on debt and having to spend extra money on interest.

So, let's say you want a personal loan to upgrade your apartment's furniture. It's reasonable to want to trade in an old futon and a rickety table for nicer pieces. But since that's not an emergency the same way a car repair is, you may find that you're able to work a side hustle for a few months and save up the money you need, thereby avoiding a personal loan and the interest costs that come with it.

Be careful when borrowing today

The Federal Reserve probably isn't done raising interest rates, and during the latter part of 2022, borrowing could end up being more expensive than consumers expect. As such, it's a good idea to avoid taking on more debt, and a side hustle could be the ticket to doing just that.

Remember, you don't have to commit to that second gig on a permanent basis. But if working one for a few months helps you avoid getting stuck with a higher-than-usual interest rate on a loan, then it's worth making the effort.