Are you feeling overwhelmed by credit card debt? Are you finding that you are struggling to make payments? You are able to take out a personal loan to tackle this problem, but before you do, you will need to understand the different pros and cons of doing this.
A personal loan does have the ability to set you on the right path and aid you in getting rid of your credit card debt, but if you use the personal loan irresponsibly then you could find yourself in more problems.
Credit card debt is expensive and this is mainly due to the high interest rate that is charged. If you are behind on your credit card debt then you are probably dealing with a high interest rate. A personal loan could be a viable option for you.
What is a Personal Loan?
A personal loan is a financial product, which is usually unsecured, although you will be able to find secure options. A personal loan works in the same way that other loans do, but they can be used on anything and are often used for home improvements, medical bills, debt consolidation and more.
A personal loan is then a loan that can be used for unexpected personal expenses, which can include consolidating your credit card debt so that your repayment process is improved. As with any other loan, a personal loan comes with interest rates, repayment terms, late penalty fees and other such things.
The Pros of Using a Personal Loan for Credit Card Debt
There are a number of advantages of using a personal loan to pay off your credit card debt. These advantages include:
Lower Interest Rates
Generally, a personal loan will have a lower interest rate when compared to your credit card, which will then save you money on the interest. If you have good credit then you will find that you will have a good chance of getting a low interest rate on the personal loan. If this is the case and you qualify for an interest rate that is lower than what you are currently paying then a using a personal loan to pay off your credit card debt is a viable option.
If you are struggling with multiple credit cards with multiple debts, then you will be making multiple repayments each month with various interest rates. You can use a personal loan to consolidate these balances together so they are housed under one interest rate. You will then benefit from just having one repayment to make each month and manage, which will make things easier and budget planning becomes easier.
Faster To Pay
When you choose to use a personal loan to pay off your credit card debt, then you might find that you are able to pay off your debt a lot quicker. This is because you will just have one payment to make and a lower interest rate. You may then find you can pay more than the minimum amount each month, so you can pay off the loan faster.
You might be wondering about the cons…
The Cons of Using a Personal Loan for Credit Card Debt
As with anything, there are a few disadvantages to using a personal loan, especially if you are not financially responsible or disciplined. Here are some of the disadvantages of taking a personal loan to pay off your credit card debt.
Potential for Higher Interest
Usually, the interest that you pay on a personal loan will be less than the interest that you pay on your credit card. However, if you have poor or bad credit then you may find that you have to pay more in interest as you have a lesser chance of qualifying for a low rate. No matter what your credit is, you will need to compare personal loan offers so that you can find a lender that offers a low interest rate to ensure that taking a personal loan for debt consolidation is worthwhile.
Same Spending Habits
If you have a high credit card balance because of bad spending habits then using a personal loan to pay off your credit card will not guarantee a difference if you do not change the way you use your credit cards. If you are not responsible and keep the spending habits, which put you in debt in the first place than a personal loan will just mask the problem and will create new debt if you continue to use your credit cards as well.
If you are able to pay more than the minimum monthly repayment each month, then you are able to pay off your personal loan relatively fast. However, if you consolidate multiple credit cards and only pay the minimum payment then it will take you longer to pay off your debt. A personal loan to consolidate credit card debt is still a debt and if you manage it poorly then you could just end up in the same boat.
If you are struggling with credit card debt then it is important that you pay it off, but you need to make smart decisions about how you will go about this. A personal loan can be a great option for some, but you will need to do your research and ensure it is the right decision for you and your finances.
If you are able to secure a lower interest rate on your debt then debt consolidation can be a good idea. Make sure that the financials line up in your favour and if they do then look for a favourable personal loan