Attaining a personal loan for credit card debt is one option for dealing with monetary difficulties. Resolving your credit card debt with a personal loan can conserve your funds on interest over the long run compared to keeping a balance.
Nevertheless, there are pluses and minuses to employing a personal loan to credit card debt. Let’s analyze the positives and negatives and consider a few personal loan substitutes that might aid you to resolve your credit card debt.
Can I Use a Personal Loan to Pay Off Credit Card Debt?
A personal loan is money borrowed from a monetary institution (bank, credit union, or internet creditor) and repaid in equal monthly or weekly sums plus interest over a certain number of months or weeks.
Generally speaking, the money that you get from a personal loan is yours to spend any way you see fit. The common purposes for debt integration loans are paying medical bills, making significant purchases, and integrating existing debt.
In most cases, the sum of money that you can borrow ranges from a few hundred dollars to several thousand dollars. Your loan’s interest rate has the potential to be either fixed or variable; nevertheless, the vast majority of personal loans have set rates. There is a possibility that fees would be attached to personal loans, which will increase the overall cost of the borrowing.
Lenders will take into consideration a number of factors, including the following when you apply for a personal loan:
- Your credit rating
- Amount of the loan
Advantages of Using a Personal Loan to Pay Off Credit Card Debt
Personal loans can be useful if you want to settle your debt more quickly than you would by making the threshold settlements on your credit cards each month. On the other hand, there are additional advantages to attaining a personal loan.
- Possible decrease in interest rate. A 20% annual percentage rate (APR) or higher is viable for those who consistently carry a load on their credit cards, whereas those with excellent credit may pay only 12%-17% APR, depending on the card they use.
Nevertheless, the average interest rate for a personal loan is under 10%. If your credit is excellent, the greatest personal loans can be had for considerably less. That’s like having the option to pay half as much monthly toward your debt and still get it settled faster.
- Consolidation makes settlements more efficient. It might be cumbersome to maintain tabs on the due dates and threshold settlements for a number of credit cards if you use them regularly. If you don’t make a settlement when it’s due or pays less than the full sum, it could hurt your credit.
If you get a personal loan to settle your credit cards, you’ll only have to worry about paying that loan’s threshold settlement each month instead of all of your individual threshold settlements. If you can cut down on your settlement frequency, you’ll have more breathing room for other commitments.
- It’s viable for you to raise your credit rating. Getting a personal loan will result in a hard inquiry into your credit history, which will temporarily cheaper your rating. Nevertheless, there are several ways in which this may be offset.
Ten percent of your credit rating is based on the variety of credit you have, and this is improved by taking out a personal loan. Having a wide variety of credit and debt demonstrates to creditors that you can be trusted with your money.
By reducing your debt, you will also reduce your use of credit. How much of your attainable credit you are actually utilizing is known as your credit usage ratio. Once all balances are settled the utilization drops to 0%. It is recommended that credit utilization be kept below 30%, and even better, under 10%.
- It’s viable that you’ll be able to reduce your debt load faster. Based on how much you owe, it could take years, if not decades, to settle your credit card debt if you only make the threshold monthly settlement.
You can combine all of your credit card balances into one easy-to-manage personal loan settlement, and then use the money you save each month to pay down the loan. The sum borrowed and the creditor both affect the terms of a loan.
Personal loans can be repaid in as little as five years, but settling credit card debt could take ten. Avoid attaining back into debt on credit cards or you’ll just be starting the cycle over again.
Disadvantages of Using a Personal Loan to Pay Off Credit Card Debt
Combining credit card debt with a personal loan comes with a cost, among other viable drawbacks. Think about the negatives alongside the positives before making a choice.
- Personal loans carry the risk of adding to existing debt loads. In other words, if you take out a personal loan, you’ll be increasing your debt. A personal loan can be used to settle high-interest credit card debt, but if you then start carrying a balance on those cards again, you’re actually adding more debt to your monetary situation.
You should only resort to a personal loan to combine credit card debt after exhausting all other viable solutions, such as making larger monthly settlements or obtaining a balance transfer credit card.
- It’s not a given that your interest rate will go down. Although personal loans normally have cheaper interest rates than credit cards, this is not always the case. A personal loan could be out of reach if your credit is less than perfect. Even if you are approved for a negative credit personal loan, the interest rate you receive may be higher than the one you are already paying.
- It’s essential to remember that there are costs linked with obtaining a personal loan. Lenders can tack on a plethora of extra costs for things like late settlements, origination, and NSF checks. You should keep this in mind while you shop around for a personal loan.
How to Get a Personal Loan for Credit Card Debt
Here’s what you should do to get a personal loan to settle your credit card debt:
- Request a personal loan. Evaluate various personal loan providers, weigh your options based on your debt load and credit history, and then apply for the one that seems to make the most sense.
- Pay down your credit card bills with the loan money. If you get a personal loan, the money is usually put into your bank account without you having to do anything more. Put that money toward paying down your credit card balances instead of spending it on anything else.
Misutilizing a personal loan can leave you with both credit card debt and a loan balance to settle.
- Get that personal loan settled as soon as you can. After you have settled your credit card balances in full, you should prioritize settling your personal loan. Make sure there are no presettlement penalties on your loan and pay as much extra as you can each month.
- While you’re settling your personal loan, don’t make any large purchases on credit. In the midst of settling your personal loan, bypass accumulating new credit card debt. If you can’t afford to settle your credit card balance in full each month, it’s best to bypass utilizing them.
- Start charging reasonable items to your credit card. There’s no use in ever going back to cash because credit cards have so many perks, such as points for making purchases. Having said that, it’s essential to only charge purchases that you can comfortably make.
It’s not worth the hassle or the money to carry a balance on a credit card. That’s why a lot of people take out unsecured loans to settle their credit card bills and start over monetarily.
Does Paying Off Credit Card Debt with a Personal Loan Hurt Your Credit?
Your credit rating could either improve as a result of taking out a personal loan or suffer as a result of the way you manage the money you borrow. It has the potential to raise your rating by:
- Increasing the variety of your credit. If the majority of your credit is comprised of revolving credit accounts, adding a personal loan to the mix could be beneficial.
- Creating a record of on-time and complete settlements. In order for your credit rating to improve, you will need to make sure that every single settlement is made on time and in full.
- Bringing all of your balances on your credit cards to zero. By settling the sums on your credit cards, you can bring down your credit usage ratio, which is an essential part of your credit rating.
If you decide to get a loan in order to settle your debt, this could have a negative impact on your credit rating due to the following reasons:
- When you apply for credit, a hard inquiry will be created on your credit report. It is viable for a hard inquiry to remain on your credit file for up to two years; nevertheless, the impact may begin to lessen after only a few months have passed.
- Putting you under pressure to run up even more debt on your credit cards. If you utilize the loan to settle your credit cards and then immediately start utilizing them again, you may find that you are in a worse monetary position than before you took out the loan.
Should You Get a Personal Loan to Pay Off Credit Card Debt?
Combining credit card debt with a personal loan can make sense if two conditions are met. You’ve settled your debt by first addressing its root cause. Secondly, the interest rate on the loan is better than what you’d get from utilizing your credit cards.
It’s extremely essential to identify and address the root cause(s) of your monetary difficulties. You may find yourself back in debt if the actions and circumstances that contributed to your debt are not altered.
If the debtor runs up their credit card debt again after settling their prior debt with the new loan, they may end up owing twice as much.
When Does Using a Personal Loan to Pay Off Credit Card Debt Make Sense?
Credit card interest rates tend to be higher than those for personal loans, which can be used for debt consolidation if you shop around for the best possible lender.
Incorporating your credit card debt into a single personal loan can save you time and money by eliminating the need to keep track of many monthly credit card installments and the high-interest rates associated with them.
Nevertheless, remember that the majority of loan providers have threshold lending sums between $1,000 and $5,000. This means that if your debt is below this threshold, a personal loan could be a smart option for you.
Personal Loan for Credit Card Debt Alternatives
- Try attaining a credit card that permits you to transfer balances. Combining your debt onto a single card with the aid of a balance transfer credit card might make settling your credit card debt much more manageable.
- Successfully bargain for a cheaper rate of interest. You should contact your credit card companies and request a reduced interest rate if you believe this will aid you to settle your balances more quickly.
- Inquire about monetary assistance programs. In the event that you lose your job or experience some other unforeseen monetary hardship, many credit card companies have hardship programs in place to aid you through it.
- Think about attaining some credit advice. Credit card debt can be difficult to handle, but a reliable credit counseling organization can aid you to sort through your alternatives and come up with a plan to get out from under your debt as quickly as viable.
To save funds in the long run, you may want to integrate your credit card debt into a single personal loan rather than making monthly installments on each card.
As a bonus, it could help you reduce the complexity of your position, allowing you to put more energy into repairing your finances and, if necessary, forming more sustainable spending routines.
Read the fine print, be wary of hidden fees, and don’t be afraid to ask plenty of questions. When looking into a personal loan to settle debt, it’s essential to work with a reputable lender.