For many people, debt is a heavy burden that causes stress and frustration and can cripple their finances. If you’re one of these people, you may be looking for a way to get out of debt as quickly as possible. One option that can help you accomplish this is taking out a personal loan to pay off your credit card debt.
Taking out a personal loan to pay off credit card debt might help you save money on interest and speed up the process of paying down debt. Because of this, debt consolidation has become one of the most popular purposes for taking personal loans.
This article discusses how and why it might be an excellent idea for you to pay off credit card debt with a personal loan.
There are typically two types of personal loans that you’ll want to consider: secured and unsecured.
To receive a secure loan, you may be required to offer up collateral, such as a car or home. If you fail to pay back your loan, that collateral becomes the lender’s property. Because of that, these loans often have fewer credit requirements, and those with lower scores can qualify. The interest rates are also lower, and the loan amounts typically higher. However, there are additional risks associated with secure loans since your property is on the line.
Unsecured loans do not require collateral and instead take into account your creditworthiness to determine approval, interest rates, and loan amounts. You will likely end up with a higher interest rate than with a secured loan, but you do not run the risk of losing your property if you fail to pay it back.
There may be multiple vendors vying for your acceptance when applying for a loan. Knowing which loan to choose, what interest rate to accept (if given a choice), and selecting the right amount are essential considerations.
Before considering a loan, it’s essential to know how much debt you’re in. Simply gather all your credit card balances–be sure to add the latest transactions that have yet to clear–and add them together. This number provides you with a base amount to consider for your personal loan.
However, it’s also important to consider any known upcoming expenses and how much the monthly repayment would be so that you can work that into your consideration as well.
Understanding your credit can help you make an intelligent decision when choosing a personal loan. It’s important to check your credit report and credit score to determine your lending power and avoid surprises when the offers come through. You can check your credit report with all three credit bureaus at AnnualCreditReport.com for free.
Checking your credit report often will also allow you to notice any negative information or inaccuracies that could affect your borrowing power. If possible you should try improving your credit score before applying for a loan since this will help you gain more borrowing power and potentially give you a better interest rate.
Not all financial lending institutions make sense for everyone. Shop around, if possible, and include banks and credit unions. Sometimes you have to accept those willing to approve you, but when given a choice, be sure to compare the offers and carefully review the terms of the agreement.
Before moving forward or applying for your loan, be prepared with everything you need. You may need information from creditors, employment records, paycheck stubs, or other information to help you move along in the process. If you turn in an incomplete application, you can instantly get rejected, making it harder for approval in the future.
Although credit cards allow you to make a minimum monthly payment that covers your interest costs, these payments rarely help you pay down any of your principal amounts. As a result, paying just the minimum payment can take many extra years. This can lead to thousands of dollars in additional interest charges over time.
By taking out a personal loan instead, you can focus on paying down your principal balance, which can help you save money on interest and get out of debt more quickly.
By consolidating debt–paying off several credit card accounts with a personal loan–you can make one monthly payment instead of having to keep track of all your credit card payments separately.
There are several benefits to taking a personal loan, and it’s worth considering if these benefits outweigh any of the potential negatives when making your choice.
When the Federal Reserve raises short-term interest rates, credit card rates go up. But, because loans are considered longer-term investments, the rates on personal loans stay relatively low. With a lower interest rate, more of your payment will go toward paying down your principal amount. Credit cards have notoriously higher interest rates, and it can be challenging to get out from under the extra percentage points.
Technically, credit cards can last a lifetime. Personal loans, however, typically have an end date that you can work toward. Also, paying off your loan faster can dramatically reduce your interest charges.
There are no surprises when it comes to a personal loan. The amount you agreed to pay monthly is the amount you’ll have to pay every month throughout the length of the loan. This helps you budget better and avoid any unexpected expenses.
Not having to juggle multiple credit card accounts is another benefit to getting a personal loan. Instead of keeping track of several due dates, you can focus on the singular task of paying off your loan.
A personal loan can lower your credit utilization and improve your credit score. If you pay off your loan early, you can also get a boost down the road or qualify for even better loans when you need them.
Of course, there are some not-so-positive things to consider when choosing a personal loan. Here are a few disadvantages to know about:
Because a loan is shorter and has a fixed term, you will have to contact the loan company and try to rework our payment if you need to lower your payment. It’s best to start with a payment low enough that you never run into that problem, but things happen.
Now that you’ve used your loan to pay off your credit card balances, you run the risk of running up your cards again. This could get you into even deeper debt and make your situation worse.
Some lenders charge upfront origination fees. These will be reflected in your annual percentage rate (APR).
The interest rate you’re offered on a personal loan will depend on how risky the lender thinks it is to lend to you. If you have fair credit, you might not get a lower interest rate than what you’re currently paying on your credit cards. Make sure to compare personal loan rates from multiple lenders before deciding which one is best for you.
You can save money on your interest rate by using a balance transfer credit card. This card has a lower introductory interest rate for a set amount of time. But be aware that there is often a balance transfer fee, which is a percentage of the debt you’re transferring.
Making more than the minimum payment can help you pay off your loan faster. This can save you a lot of money on interest charges. Use the debt avalanche method to pay off cards with the highest interest rates first.
If you are experiencing financial hardship, you can sometimes negotiate with your lender to have a lower interest rate or monthly payment or forgive part of what you owe. There are also nonprofit credit counseling services and debt settlement companies that may be able to help.
Although credit card debt can be discharged in bankruptcy, this should only be done as a last resort. If you have debt forgiven in bankruptcy, it will take time to rebuild your credit.
You can use a personal loan to pay off your credit card debt, but other strategies might be better for you. You can get a free copy of your credit report to see what you can do to improve your score. You can also compare rates from different lenders without harming your credit score.
If you’d like to learn more about getting a personal loan to help you handle whatever life throws your way, check out Think Wallet.
Fill out one easy form on ThinkWallet.com, and your inquiry will be submitted to our large network of lenders or lending partners. Loan amounts range from $2,500 to $35,000 (exact amounts vary based on lender or lending partner programs and your state of residence). You can have a response from one of our lenders or lending partners the same day, and often within minutes. You may be redirected to the lender’s or lending partner’s website. There you may have the opportunity to start your application and review the terms of the loan, including details about applicable rates and fees. If you accept these terms, the lender or lending partner will deposit money directly into your bank account as quickly as the next day.
Most lenders or lending partners have the following requirements to be approved:
To be accepted by most lenders or lending partners in our network, you should:
- Be employed at your present job for at least 90 days.
- Be a US citizen or a permanent resident, and be over the age of 18.
- Have an income of around $1,000 per month after tax deductions.
- Have a checking account in your name.
- Provide a working telephone number for your home and work.
- Provide a valid email address.
Through our secure technology, we will find a lender or lending partner in our network that is willing to take work with you based on the information you submit. Once we have a lender or lending partner ready to work with you, that lender or lending partner will contact you to get any additional information they might need (such as verification of employment, pay stubs, etc.).
After your lender or lending partner has taken and approved your request, cash will be deposited directly into your bank account. That means you don’t have to take a trip to the bank to endorse and deposit a check or pay check-cashing fees.
ThinkWallet.com was created to help consumers access money without hassle and wasted time. We understand emergencies exist that may require access to cash. That’s why we simplified the process of finding a lender or lending partner to get the money you need. You no longer have to visit dozens of websites, fill out numerous requests or stand in line at a local store.
We look forward to helping you with your personal lending needs.