Should I Get A Personal Loan To Pay Off Credit Card Debt?

credit card debt

In an ideal world, no one would be in debt, let alone consider getting a personal loan to pay off credit card debt. However, in reality, there are situations or circumstances when taking out an online personal loan may be a great strategy to get ahead financially.

There are many reasons why taking out a personal loan is a good idea to quickly repay credit card debt. Unlike credit cards, the interest rates for personal loans are, for the most part, much lower. Additionally, the approval rate is reasonably fast. 

What’s more, a personal loan can boost your credit score as well. Read on to learn the pros and cons of getting a personal loan to repay credit card debt. 

When A Personal Loan Makes Sense

If you’ve ever wondered, “do I need a personal loan to pay off debt?” you’re not alone. However, many people usually run to a payday loan company to “rescue” them. Payday loans are notorious for keeping people in debt, and most borrowers end up in worse financial positions than they were before the payday loan.

However, a personal loan is an option to consolidate your debts into one manageable loan rather than trying to manage a series of credit card debts. A personal loan can offer significant benefits for those who are eligible for a low-interest rate.  

The following are some cases where using a personal loan for consolidating debt can make sense:

You Want A Debt-Free Life

The problem with credit cards is they make it painless and convenient to purchase things you can’t afford. If you struggle in the will power department, credit cards can be your worst enemy. Small insignificant purchases quickly pile up into unmanageable high-interest debts that continue to snowball out of control.

The ultimate goal is to get to a point in your life where you don’t need to use credit cards and refuse to buy things you don’t need. When you can make that mental shift, it’s time to start your debt-free journey.

Shuffling debt around with personal loans and 0% interest credit cards is a fruitless endeavor if you are going to go right back into bad financial habits. However, if you have made the decision to change your life and have a plan to get out of debt with a budget, a personal loan can save you hundreds, and possibly thousands, of dollars.

Personal loans offer a fixed repayment schedule with one monthly payment and a set interest rate. In addition, using a debit or cash card instead of credit cards can be a game-changer to stay on budget.

To Secure A Lower Monthly Payment

After you make the decision to change your life, you need to evaluate your credit card balances and the interest rates associated with them. It’s not uncommon for credit cards to carry interest rates of 16% to 25%. If you have a considerable amount of debt, it can be like using a bucket to bail out a sinking ship.

A personal loan can be used to combine all of your high-interest debt into one personal loan with a significantly lower interest rate. Some people are able to secure a fixed interest rate of less than 10% depending on credit history and the amount of debt.

To know for sure, use a debt consolidation calculator. However, it is possible to obtain a lower monthly payment with a longer repayment timeline and a lower annual percentage rate (APR). 

You Want To Consolidate Debts Into A Single Payment

If, for example, you have many different credit cards with different APRs and payments, it can be a real pain to create a debt repayment plan and ensure you are maximizing and making your payments every month.

With that said, taking out a personal loan to repay debt can help you remove or eliminate multiple payments. By doing this, you can go down to a single payment each month, with a lower APR.

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To Qualify For A Lower Interest Rate

For the most part, being eligible for a personal loan with the best terms and interest rates usually requires at least a 670 FICO score. Even so, a FICO score of 670 is only the minimum score you will want to possess for a company to consider you an average borrower. 

To get the best rate, the higher your credit score, the lower the interest rate you will be offered. Based on the current personal loan interest rates, the standard rate is around 5.99% APR. If you have been paying more than 20% interest with your credit cards, this significant drop means you will be able to pay the debt off much faster with more money going towards the principal.

When A Personal Loan Doesn’t Make Sense

In certain situations, taking out a personal loan to repay credit card debts can help save a substantial amount of money. However, there are situations when it is not a good idea to consolidate your debt.

The following are some of the red flags:

You Need Help To Get Out Of Debt

There are cases where you may have so much debt you feel it is impossible to get out of debt on your own. In these situations, you may need professional help to put together a debt management plan rather than trying to consolidate your debt on your own.

Without a plan ahead of time, your debt repayment or consolidation may be difficult to successfully achieve without going back into debt. 

Other options including bankruptcy or other credit counseling services. Other options may be necessary depending on your current financial situation and your desire to get out of debt and remain debt-free.

You Bear A Small Amount Of Debt

When you have a small amount of debt you can repay quickly, it doesn’t make sense to consolidate or secure an additional loan. Make a plan to pay off your debt and stick with it.

Paying off high-interest credit card debt should be the number one priority that will lead you to financial freedom and doesn’t always require other options.

Takeaway

Envision a life never having to worry about another credit card bill. By aiming your attention on debt repayment and creating a plan to be successful, I guarantee you will be surprised how quickly you start to pay things off.

However, if you have a plan and are sick and tired of being broke, consolidating all of your unmanageable high-interest credit card debt into one fixed interest personal loan can be the secret weapon.

Lower interest payments and laser focus will help you make significant progress to pay off credit card debts and finally live the life you deserve.

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