USING PERSONAL LOAN TO PAY OFF CREDIT CARD DEBT
Paying for goods and services with a credit card is not just life made easy. The result of the convenience you enjoy could be a pile of credit card debt. This does not need to be the case if you have some financial discipline.
If you, like many other Americans, are battling with mounting credit card debts, there are some options open to you. The use of a personal loan to pay off credit card debt is one of those options. Lenders can give you a personal loan based on your income, credit score, and other financial data. Most lenders offer fixed interest rates while you make a stipulated monthly payment towards repaying the loan.
Here are some advantages of using personal loan to payoff credit card debt:
- Credit card debt consolidation. It is easier to manage one loan rather than battling with different credit card loans. You may end up mixing the deadlines up or forgetting some entirely as you try to keep track of all of them. When you consolidate them into one by using a personal loan to pay them off, you can easily keep track of that one debt.
- Lowering your interest rates is possible when you consolidate your credit card loans into personal loans, but there are no guarantees. You could save more with personal loans, specifically if you have a good credit score. Often times, the interest rate is lower compared to that of credit cards. A personal loan calculator can assist you in determining the exact possible savings on interest.
- Better budget management. Personal loans allow you to have fixed interest rate and specified monthly payment. These make it easier for you to manage your budget and save more.
- Possibility of paying off faster. Most debt consolidation loans offer payment span of 24-60 months, which is shorter than the longer stretch offered on credit card loans.
- Likelihood of lower monthly payment. If you can a get lower interest rate on your personal loan, your monthly payments reduces.
- Improved credit score. If you are able to religiously make your monthly payments on time, you can actually improve your credit score.
Disadvantages of using personal loan to pay off credit card debt
- You could be spending more. Some lenders charge fees, such as origination fee, which when added to the interest, shoots up the amount you pay on your personal loan.
- Falling back to reckless spending. Without financial discipline, you may go back to spending more on your credit card since the personal loan has freed up space for you.
- Interest rate might be higher. If your credit score is low, then your personal loan interest might be higher, since it is dependent on your credit score.
- You may not be eligible for a personal loan. If your credit score is below 525, lenders may not accept your application for a personal loan. Your debt-to-income-ratio, employment history and other factors are all considered.
If your credit score is high, backed by good financial history, then you may be better off with personal loan consolidation, in combination with controlling your future spending habit. Otherwise, you may have to look for other alternatives.