Personal Loan to Pay Off Credit Card Debt
Being buried by credit card debt is overwhelming. However, before taking out a personal loan to pay off credit cards, you need to consider the different advantages and disadvantages.
It’s possible that a personal loan could set you on the right path to eliminating credit card debt, but if you aren’t careful, you could create more problems for yourself.
The root cause of the high cost of credit card debt is the interest rate. Many cards are characterized by higher interest compared to other financial products such as student loans or mortgages.
If you are behind on credit card debt, there is a chance that you are dealing with a high interest rate. If this is the case, then using a personal loan to pay off credit card debt may be a viable solution.
What is a Personal Loan?
A personal loan is a financial product that is often unsecured though there are secured options. They work in the same way as other loans, but their purpose is often associated with debt consolidation, home improvement, medical bills, and more. In a nut shell, they are loans for unexpected personal expenses, and one of those includes consolidating credit card debt to improve the repayment process. Like other loans, they come with repayment terms, interest rates, late payment penalties, and more.
Pros of Using a Personal Loan to Pay Off Credit Card Debt
You will discover several advantages of using a personal loan to pay off credit card debt. None of these are guaranteed to all personal loan applicants, but borrowers with the right financials could experience some of these benefits. Some of those include the following:
Lower Interest Rates: Compared to the interest paid on your credit card, you could replace that credit debt with a personal loan at a lower interest rate, saving you money on interest. Creditworthy personal loan applicants have a better chance at receiving a low personal loan rate. If this is the case, using a personal loan to pay off credit card debt becomes more viable.
Single Payment: If you have multiple credit cards and debt, you could use a personal loan to consolidate those balances together under one interest rate. That way, you have just one payment to manage, simplifying the repayment process. The end benefit to this is you should have a better chance at making on-time payments.
Faster Pay Off: Another advantage of using a personal loan to wipe out your credit card debt is the opportunity to pay the balance off quicker. With just one payment and a lower interest rate, you could find it easier to pay more than the minimum amount due each month. Want to see how much faster you can pay off your debt and how much it can save you? Check out our Debt Payoff Calculator.
Cons of Using a Personal Loan to Pay Off Credit Card Debt
Like all financial products, there are certainly a few cons to consider. While personal loans to pay off debt have the potential to be extremely helpful, they can also cause a few problems if you don’t have your head on your shoulders. Here are a few key considerations to keep in mind when shopping for a personal loan to pay off credit card debt.
Potential for Higher Interest: Typically, the interest you pay on a personal loan is less than the interest on your credit card. However, if you have fair or poor credit, you could end up paying more in interest since you have a lower chance of securing a low rate. Even with good credit, some lenders may charge interest at a rate that makes debt consolidation unviable. Therefore, it is important to compare options to find a lender that offers low interest personal loans.
Same Spending Behaviors: If your credit card balance is high due to poor spending habits, there is no guarantee that paying your card off with a personal loan will make a difference in how you use credit cards. For people who are not responsible with spending, a personal loan is nothing more than a temporary Band-Aid.
Slower Pay Off: As mentioned, if you pay more than the minimum monthly payment, you can pay a personal loan off relatively fast. However, if you consolidate several credit cards and stick with the minimum payment, it may take you longer to get out of debt. At the end of the day, it is still a debt obligation, and if handled poorly, you can make mistakes and extend repayment.
It is important to pay off credit card debt, but you want to make smart decisions along the way. A personal loan can be a great option for some people, but be sure to do your research first so you can feel confident with your decision. Just know that debt consolidation can be a good solution if you are able to secure a lower interest rate on your debt. It can also be a poor solution if the financials do not line up in your favor.