Taking a Personal Loan to pay off Credit Card debt! Is it worth a shot?
There are times when the credit card debt held by an individual becomes so much that only a part of it is paid each month and the rest is rolled over to the next payment cycle. In case, your debt is so huge that the credit card bill is rolled over almost every month and the subsequent interest on the pending amount gets increased with every passing day, then it is time to look for other possible avenues to pay off your card debt.
Credit Cards in general, tend to charge a very high rate of interest if the credit card bill is not paid on time or in full. This means that owing a debt on credit card can land a borrower into a vicious cycle of never-ending interest that is difficult to break and get out of. Paying off credit card debt through personal loan is an intelligent decision and a great way-out in case the interest and overall processing charges on the loan are lesser than the interest being charged on your credit card debt.
Do keep in mind the following very important points about availing a personal loan to pay off your accumulated debt on credit card.
- Avail a personal loan to pay off debt on your credit card only when the interest rate offered on personal loan is lower than that being charged on the debt. This ensures that you are able to save a fair amount of cash. Credit card repayment calculators can be used to figure out your exact savings.
- A huge credit debt will not be able to fetch you a high personal loan amount. Since, almost all personal loans are unsecured, high amounts of loan are dished out only to customers who have a good credit score. In such a case, a secured loan will be able to fetch higher loan amount for you. Also, traditional and trustworthy names in the financial sector are better to be considered than local lenders.
- Personal loans usually offer a fixed rate of interest as well as a regular payment option which ensures that your repayments are more streamlined and monitored. You will know each month exactly how much you are required to pay to the lending entity and hence a smoother and better financial planning can be achieved.
- Try not to close down your credit card account once you have paid off the full debt via personal loan. Closing down a credit card account abruptly by paying off the debt may result in a lowered credit score which may hinder your credit chances in future.
Before consolidating your debt via personal loan, the following points can be given a shot:
- Call up your credit card provider and request for lower rates of interest if possible.
- Find out if you can pay off the accumulated debt all by yourselves in a short time, say six months to up to a year or even less.
Some possible disadvantages of availing a personal loan to pay off the debt on your credit card are:
- In case your debt is manageable then it is advised to pay off on your own rather than by availing a personal loan. Consolidation is advised only in case of huge debt amounts that cannot be paid off by regular payments.
- Availing a personal loan to pay off the credit debt means you are simply moving the debt to another form by converting it to monthly loan repayments. This does not solve the problem of debt but rather just juggles it around without any actual progress being made.
- A 0% APR balance transfer is a cheaper option for debt consolidation than going for a personal loan.