Should I use a personal loan to pay off credit card debt?

If you have credit card debt, you know how frustrating it can be trying to balance multiple credit card payments each month. Will you be able to make more than the minimum payment on each card? How much more? Should you focus on paying off the card with the highest balance or the card with the highest interest rate?

Taking out a personal loan for credit card debt can help solve many of these problems. You can use your personal loan to pay off your credit card debt in full. And since personal loans often have lower interest rates than credit cards, you might even save money in interest charges over time.

That said, paying off credit card debt with a personal loan has its pros and cons. Let’s take a look at the pros and cons and explore some options that might help you pay off your credit card debt without taking out a personal loan.

3 Reasons to Use a Personal Loan for Credit Card Debt

Using a personal loan for credit card debt is a form of debt consolidation, and there are many benefits to consolidating your debt into one monthly payment. Here are three of the top reasons to use a personal loan to pay off your credit card debt:

1. You can pay off your credit card debt in full

If you have high balances on your credit cards, a personal loan can help pay off your credit card debt in full. This will not only give you the peace of mind that comes with being credit card debt free, but it could also boost your credit score.

Keep in mind that using a personal loan to pay off credit card debt is not the same as freeing yourself from debt. After paying off your credit cards, you will still need to pay off your personal loan. However, paying off your high credit card balances and saying goodbye to the high interest charges that come with them can be a huge financial relief and is one of the biggest benefits of paying down debt with a personal loan.

2. You’ll probably get a lower interest rate

The average credit card interest rate is currently around 16% APR, but many of the best personal loan rates are closer to 6% APR. Although your actual interest rate will depend on your credit score, the amount of money you plan to borrow, and the terms of your loan, it’s quite possible that a personal loan will have a much lower APR than a your credit cards.

If you take out a personal loan with a lower interest rate than what you pay on your credit cards, you could save a lot of money in interest charges by using your personal loan to pay off your credit card debt. .

3. You will have a monthly payment

Balancing multiple credit card payments each month can be difficult. Personal loans allow you to consolidate your debts into a single monthly payment. This can make it easier to plan ahead and set aside money for your monthly loan payment, which can also help you pay off your personal loan faster.

Remember: the more money you put into your loan payments each month, the more money you’ll save over time in interest charges.

Potential Drawbacks of Paying Credit Cards with a Personal Loan

While there are many advantages to using a personal loan for credit card debt, there are also some disadvantages, including the possibility of getting stuck in credit card debt again. Here are four of the biggest drawbacks of paying by credit card with a personal loan:

1. Personal loans are another type of debt

Although personal loans can help you pay off your credit card debt in full, it’s important to remember that a personal loan is just another type of debt. Once your credit cards are paid off, you will not be released from your debts. You will still have to repay your personal loan and you will have to make your monthly payments without incurring new credit card debt. .

2. It can be difficult to avoid using your credit cards

If you’re used to using your credit cards to cover expenses that you can’t pay off in full each month, learning to spend within your means can be difficult. When using a personal loan to pay off credit card debt, it’s important to avoid accumulating new credit card balances when you pay off your personal loan. Otherwise, you could end up worse than you started.

If you can make small purchases with your credit cards and pay them off in full each month, you may be able to continue using your credit cards after you pay them off with your personal loan. If not, it may be a good idea to avoid using your credit cards altogether. Once your personal loan is paid off, you can start using credit cards again, but only for purchases that you can pay off in full at the end of each billing cycle.

3. Low interest rates are not guaranteed

We’ve talked a lot about how personal loans tend to offer lower interest rates than credit cards, and while that’s true, that might not be the case for everyone. If you have a poor credit history and have bad credit, you may not qualify for a personal loan. And if you manage to get approved for a personal loan with bad credit, you could be hit with a higher interest rate than you’d like.

4. Personal loans come with fees

Some personal loans charge origination fees, among many others, including late payment fees and insufficient funds fees. Keep this in mind as you browse through your options and make sure you are aware of any fees that may be associated with a personal loan before you commit.

How to Pay Credit Card Debt With a Personal Loan

If you want to use a personal loan for credit card debt, here are the steps to follow:

Apply for a personal loan

Compare personal loan services, review eligibility requirements, and apply for the loan that seems like the best option for someone with your debt and credit score.

Use the loan money to pay off your credit card debt

In many cases, the money you receive by taking out a personal loan is deposited directly into your checking account. Use this money to pay off your credit card debt. Don’t use it for anything else. If you misuse your personal loan funds, you will remain in debt on your credit card and you will have your personal loan to pay off.

Repay your personal loan as quickly as possible

Once your credit card debt is fully paid off, focus on paying off your personal loan as quickly as possible. Make sure your loan doesn’t penalize you for prepayment and invest as much extra money in your loan each month as you can afford.

Avoid using your credit cards to pay off your personal loan

Don’t let yourself fall back into credit card debt when you pay off your personal loan. Avoid using your credit cards or only make purchases that you know you can repay in full each month.

Start using your credit cards for purchases you can afford

There’s no reason to ditch credit cards altogether — there are so many benefits to using credit, including the chance to earn rewards on your purchases. That said, try to use your credit cards only for purchases you can afford. Credit card debt is expensive, time-consuming, and more of a hassle than it’s worth. That’s why many people turn to personal loans to pay off their credit card debt and get a fresh start.

Alternatives to Managing Credit Card Debt

Apply for a credit card with balance transfer

A balance transfer credit card can help you consolidate your credit card balances onto one card, often making it easier to pay off your credit card debt. Many of the best balance transfer credit cards offer you between 12 and 21 months of 0% introductory APR to help you pay off your balances while avoiding interest charges.

Negotiate a lower interest rate

If you think lowering your credit card interest rates would give you the edge you need to pay off your credit card debt quickly, try contacting your lenders and asking for a rate reduction. Keep in mind that cardholders in good standing will be more likely to receive a lower interest rate than cardholders with a history of missing or late payments.

Ask about difficulty programs

Credit card issuers have hardship programs designed to help people who find themselves unemployed or experiencing some other type of unexpected financial hardship. Many of these programs include credit card forbearance, in which card issuers forgo payments (and, sometimes, interest) for a set period of time. If you’re in the midst of a financial crisis, calling your credit card issuer and asking about hardship programs can help you avoid unmanageable credit card debt.

Learn about credit counseling

A reputable credit counseling service can help you manage your credit card debt and suggest options that could help you pay off your debt faster. Whether you want to create a budget or compare debt consolidation options, a credit counseling service can provide the advice you need.

Sign up with a debt settlement service

If you think you’ll never be able to fully pay off your credit card debt, a debt settlement service can help you negotiate a settlement with your credit card company. Debt settlement companies often incur high fees, and settling your debt instead of paying it off in full could hurt your credit score. However, debt settlement is one way to deal with the type of credit card debt that you can no longer handle on your own, so add it to your list of options.

The bottom line

Taking out a personal loan for credit card debt can help you pay off your credit card debt in full and take control of your finances. However, a personal loan is not the only option for people who want to pay off their credit card debt. A balance transfer credit card, for example, is another great way to consolidate your credit card balances into one monthly payment.

Before taking out a loan, consider all of your options. Make sure the personal loan you are considering offers lower interest rates than your credit cards and have a plan to pay off your personal loan without incurring new credit card debt. It’s the best way to use a personal loan to pay off your outstanding credit card balances.

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