We know how frustrating it is to manage multiple credit card debts. You need to meet all monthly payments to maintain a clean credit score. And that’s accurate, whatever your financial status is on your specific due date. Otherwise, you’ll fall into your own trap — debt accumulation that you wish you didn’t even start.
Because of this, many people use personal loans to pay off their credit card debts. Personal loans often have lower interest rates than credit cards, so this may sound a good move. Maybe yes? But not for everyone. Let’s look at the pros and cons of using a personal loan to pay your credit card before considering this as your option.
3 Benefits of Using Personal Loan for Credit Card Debt
1. You Can Pay Off Your Credit Card Debt in Full
If you’re paying the minimum amount on your credit card balance monthly, it may take years to pay your balance, depending on your debt amount entirely. With a personal loan, you can pay off your credit card debt at once. It will not only give you peace of mind but may also improve your credit score, especially if you have a high credit balance.
Just keep in mind that this strategy will not make you debt-free. After paying off your credit cards, you need to create a payment plan for your personal loan.
2. You Will Maximize Lower Interest Rate
While credit cards and personal loans both offer ways to borrow funds, they often have differences — especially in interest rates. In most cases, personal loans have lower interest rates than credit cards. But of course, it varies depending on the terms.
Let’s say your credit card offers a 5-8 % interest rate, while your personal loan offers a 2-3 % interest rate, then, you will save an average of 3-5 % interest monthly depending on the payment cycle. You can keep what you save to repay your personal loan.
3. You Can Consolidate and Streamline Your Payments
If you have several credit card payments monthly, it won’t be easy to keep track of everything from each amount and due date. If you miss a single payment, you could face additional fees and may lower your credit score.
By using a personal loan, you can consolidate multiple loans and make a single payment monthly. Aside from reducing your number of payments, it can also save your time.
3 Potential Drawbacks of Using Personal Loan to Pay Off Your Credit Card Debt
1. It Can Lead You to More Debt
Always remember that a personal loan still means you are borrowing money. If you pay your credit card debt through a personal loan, but you start carrying a new credit card loan again, you’ll pin yourself to more debt than you had before.
Please remember that the goal of your personal loan is not to eliminate debt but to ease your payment option.
Also, paying off your loan requires building a new habit. If you’re in the habit of using your credit cards to cover expenses that you can’t pay religiously, then you’ll end up in the same scenario.
2. Lower Interest Rate is NOT Guaranteed
While personal loans often have lower interest rates, it’s not always the case for everyone. If your credit score is not qualified, you may end up with a higher interest loan than what’s expected. If you fall in a bad credit category, this strategy may not be a good option.
3. Remember that Personal Loans have Fees, too!
Another reminder that personal loans have fees, too. This includes the processing, late payment, amendment, and other fees depending on the lender. Make sure to include these on your projection. Otherwise, you will be surprised when you receive your loan receipt.
Ready to Apply for Personal Loan to Get Rid of Your Credit Card Debt?
Taking a personal loan can help you get rid of your credit card debt in full and control your finances better. However, it would be best to understand how it works first to ensure that you are on the right track.
Choose a personal loan company with integrity that offers lower interest rates than your credit card and is willing to help you with your main goal.
You will find a lending company that you would perfectly match by doing good research. Ask and look around — with your friends, family, look over the reviews on their website, social media, public forum, and other means.