Use Personal Loan to Pay off Credit Card Debt?- Personal loans can be used to pay off credit card debt owing to the diverse benefits attached. More often than not, personal loans have lower interest rates than credit cards and this can ultimately help you pay off your debt faster. It could also help to save money on interest charges and other additional fees.
While personal loans can be used to pay off credit card debt, they often include strict eligibility criteria and fees. So, it is important to weigh your options and consider the risks involved if you keep using your credit card to pay off debts. Those who intend to use a personal loan to pay off credit card debt should review their financial status to know if it is a good idea or not. You can also consult a professional if necessary.
Should I Use a Personal Loan to Pay off my Credit Card debt?
Before deciding on whether to use your loan to pay off the debt on your credit card, there are certain things you must consider. It is important to;
Evaluate Your Financial Situation
This is one of the crucial things you should consider before using your loan to pay off credit card debts. Ensure you assess your financial status to know if you’ll be consistent with the monthly payments of your loan.
Compare The Interest Rates
in a situation where the interest on your loan is relatively lower than the interest on your credit card, it can help to save costs. However, if they are almost at the same rate, using a personal loan to pay off credit card debts is not a wise decision. Making a comparison of the interest rates will enable you to understand which option is best for you.
Consider The Total Debt You Owe
Perhaps your credit card debt is overwhelming and you’re finding it difficult to meet the payment, getting a personal loan can be an ideal option. Personal loans offer a more convenient and manageable way to pay off credit card debts.
Aside from the tips we have provided, if you’re still unsure of what to do, you can consult an expert who will help review your financial situation and offer advice on how to make an informed choice.
Advantages of Using a Personal Loan to Pay off Credit Card Debt
Aside from the fact that personal loans can help you get out of debt faster, there are other benefits it offers. Using a personal loan to pay off credit debt can;
Help Boost Your Credit Score
Taking out a personal loan can adversely help to increase your credit score. It also shows lenders that you are responsible and can potentially manage your money. Using a personal loan to pay credit card debts can lower your credit utilization. It is noteworthy, that this is dependent on the interest rate; ensure you review the rate on the personal loan before applying.
Offer You A Lower Interest Rate
Most personal loans offered by different lenders or creditors have an average interest rate of less than 16%. If you have a high credit score, there’s every tendency to earn a lower interest rate. This would ultimately help you consolidate your bills; reduce your total interest payment, and quick payment of debt.
Enhance Streamlined Payments
Debt consolidation helps to streamline payments, if you’re the type that makes different credit card payments monthly, you will be privileged to make payments per month on your loan. This would help to reduce the number of payments you are initially required to make, and at the same time, you will not fall behind on your payment.
Help to Repay Debt Faster
With a personal loan, you can pay off your credit card debt with ease and at a cash rate. Once your loan is approved, set up a payment plan that will guide you on how to repay your loan. Although the payment term largely depends on the Lessing institution and the amount you borrow, you can get a short-term loan that can help pay your debt faster.
Disadvantages of Using a Personal Loan to Pay off Credit Card Debt
While there are several benefits of using a personal loan to pay off credit card debts, there are also potential disadvantages attached to it. Before deciding on using a personal loan to pay off debt on your credit card, consider the following drawbacks;
It Could Lead to More Debt
Taking a personal loan to pay off an outstanding debt typically means you’re accumulating debt upon debt. A personal loan automatically means you’re borrowing more money to take care of other needs. If you use a personal loan to pay off your credit card debt, there’s every tendency to get into more debt.
Personal loans will not erase your debts; it’s just an option that helps pay your credit card debt faster. But it still does not dispute the fact that you are at risk of bigger debts. Hence, it is important to assess your financial strength before taking out a personal loan for credit card debts.
Low Interest Rate is not guaranteed
Although personal loans offer lower integrated rates compared to credit cards, this is not usually the case for everyone. Those who qualify for a personal loan with bad credit may have to pay higher rates. In addition, if you do not have stellar credit, there’s a possibility that you won’t meet the credit score requirement for a personal loan. Hence, taking out a personal loan for credit card debt does not guarantee you lower interest rates.
Personal loans have additional fees
Before taking out a personal loan from any lending institution, it is important to compare the interest rate and other fees specified by the lender. This would enable you to have a better understanding of how the loan works. Most lenders charge additional fees aside from the interest rate, such as late payment, or insufficient or origination fee. Pay attention to these additional fees to check if it is a wise option for you.
FAQs
Where can I get personal loans?
You can get personal loans from banks, credit unions, and online lenders. Most of these legal institutions will be glad to offer you a personal loan, provided you meet up with their criteria. If you have an excellent credit history, you’ll most likely qualify for low interest rates. Even if you have a bad credit history, some lenders may be willing to work with you. It is advisable to always conduct your research and get a personal loan that suits your needs and preferences.
Do I need collateral for a personal loan?
There are two major types of personal loan-secured and unsecured. If you are taking out an unsecured personal loan, you do not need to put up collateral. But, if it is a secured loan, you are required to put up collateral such as a house, car, or any other asset for the loan to be approved.