Paying for goods and services with a credit card makes life easy. It’s so convenient to pay with a plastic card that cashiers are surprised to see anyone pay with cash or checks these days! But as we all know, the result of that convenience you enjoy often results in credit card debts. Financial discipline is tough and once credit card fees and interests kick in it can be really tough to catch up.
If you, like many other Americans, are battling with mounting credit card debts, there are some options open to you. The use of personal loan to pay off credit card debt is one. Lenders offer personal loans based on your income, credit score, and other financial data. Most lenders offer fixed interest rates as long as you are making a regular monthly payment towards repaying the loan. Generally, the higher your credit score, the lower the interest rate.
Advantages of using a personal loan to payoff credit card debt:
- Credit card debt consolidation. It is easier to manage one loan than multiple credit cards with different balances. These days most of us pay bills online and there’s a different password for every online account. Sometimes you forget your user name and password. 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 personal loan to pay them off, it’s probably easier to keep track of that one debt instead of multiple accounts.
- Lower interest rates. Itis possible when you consolidate your credit card loans into personal loans, but there are no guarantees. You could save more with personal loans, especially 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 determine the exact possible savings on interest.
- Better budget management. Personal loans usually come with a fixed interest rate and specified monthly payment, making it easier for you to manage your budget.
- Possibility of paying off faster. Most debt consolidation loans offer a payment span of 24-60 months which is shorter than the seemingly infinite payoff on credit card loans.
- Likelihood of lower monthly payment. If you qualify for a lower interest rate on the consolidated personal loan, it could reduce your monthly payment.
- Improved credit score. If you are able to make all of your monthly payments on time, you can actually improve your credit score.
Disadvantages of using a personal loan to pay off credit card debt:
- You could be spending more. Some lenders chargefees like origination fees, which when added to the balance, can shoot up the amount of the principle balance. When interest is based on the new principle balance, it could drastically raise the amount you spend on your personal loan.
- Falling back to reckless spending. Without financial discipline, you may go back to spending more on your credit cards since the personal loan has freed up space for you on those credit card balances.
- Interest rates might be higher. If your credit score is low, then your personal loan interest rate might be high, which makes it difficult to pay down the new personal loan.
- 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.
Final thought
If your credit score is high and you have a good financial history, then you may benefit from personal loan consolidation. Make sure to consider your overall spending habits and financial discipline and carefully evaluate the terms of the loan terms you’re offered to determine if consolidating your credit debts into one personal loan is right for you.