What is a good reason for a personal loan?

Unsecured personal loans can pay for almost anything. Their flexibility makes them easy to turn to when you want to consolidate your debts or put in that kitchen island.

But first assessing all your financing options can save you money. As the economy shifts, so will the way a personal loan fits into your plans.

Right now, for example, the cheapest way to get extra cash might not be with a personal loan, but with 401(k) funds. The government is allowing penalty-free withdrawals from these savings for those affected by COVID-19.

Still, withdrawing money from your 401(k) could mean you lose out on potential market gains and set your retirement plan back.

Even if an unsecured loan isn’t the cheapest, it may be the next-best option. Here’s what financial planners say about some of the reasons people take out personal loans.

DEBT CONSOLIDATION

A debt consolidation loan lets you pull existing debts from different sources, like credit cards and other loans, into a single loan. It can save you money if you get a lower annual percentage rate on the new loan.

It’s also an option if you don’t want to pay off your debts from smallest to largest, also called the debt snowball approach, says Miami-based certified financial planner Angela Moore of Modern Money Advisor. That repayment method focuses on little victories, but it won’t save you time or interest.

She says what makes personal loans work well for consolidation is the end date they put on your debt. Credit cards, such as balance-transfer cards that can also be used to consolidate debt, usually have revolving balances and open credit lines that you can continue to spend against.

But if you have a habit of using credit cards, try to put those to rest before you commit to the repayment terms on a loan, says...