Yes, you can use a personal loan to pay off a credit card debt entirely. Moreover, personal loans usually offer minimal interest rates compared to credit cards, enabling you to save on interest expenses in the long term.
Furthermore, securing a personal loan to pay off credit card debt can provide solutions to various financial challenges you may encounter. However, there are both benefits and drawbacks to this approach.
In addition to exploring some of the advantages and disadvantages, we will also consider alternative options for managing your credit card debt without resorting to a personal loan. So stick with us to be enlightened.
Advantages Of Using A Personal Loan To Pay Off A Credit Card Debt
You can use a personal loan to cover credit card debt, as debt consolidation offers numerous advantages, particularly in consolidating your debt into a single monthly payment. Moreover, there are three major advantages to using a personal loan to pay off your credit card debt, which are:
Pay Off Debt Entirely
Even though your credit card balance is high, securing a personal loan enables you to cover your credit card debt entirely. This deed offers not only reassurance from credit card debt but also has the potential to enhance your credit score.
However, it’s important to note that using a personal loan for this purpose isn’t similar to achieving total debt freedom. Even after clearing your credit cards, you’ll still have to pay back the personal loan.
Moreover, clearing high credit card balances and bidding farewell to high-interest charges can bring significant financial relief. This represents one of the key advantages of using a personal loan to pay off debt.
Lower Interest Rate
Presently, the average credit card interest rate is estimated at 20% APR, whereas the average personal loan rate stands closer to 11% APR.
However, your main interest rate will depend on factors such as your credit score, the borrowed amount, and the loan terms. Although there’s a strong chance that a personal loan will offer a lower APR compared to your credit cards.
By securing a personal loan with a lower interest rate than your current payment on your credit cards, you can save on interest charges. This could only happen if you are using a personal loan to pay off your credit card debt.
Single Monthly Payment
Balancing numerous credit card debts each month can be very challenging. But personal loans offer the opportunity to consolidate your debt into one monthly payment.
This procedure can simplify the process of allocating funds towards your monthly loan payment more efficiently, potentially accelerating the repayment process.
However, it’s important to note that the more funds you allocate towards your loan payments each month, the greater the savings over time in interest charges.
Disadvantages Of Using A Personal Loan To Pay Off A Credit Card Debt
While utilizing personal loans to cover credit card debt offers benefits, it also comes with its own risks. Here are some disadvantages to consider before securing this option:
Increase In Debt
Securing a personal loan to settle credit card debt requires an approach that views the personal loan as a means to an end.
Without careful management, there’s a risk of falling back into credit card debt, along with your financial obligations with a personal loan.
In addition, if you choose to secure a personal loan, immediately clear your credit card balances with the loan funds.
Certain lenders may facilitate this process automatically upon loan approval. Furthermore, have a repayment plan for the loan and establish a budget to prevent overspending.
Minimal Interest Isn’t Assured
While there is a significant contrast in average interest rates between credit cards and personal loans, securing a better rate with a personal loan isn’t guaranteed.
However, it’s important to ascertain the precise interest rate on your credit card and diligently seek out a more favorable rate with a personal loan.
Moreover, various factors, including your credit score, the loan amount, and the term length, can influence the APR you qualify for.
Fees
During your research of various lenders, it’s important to consider any associated fees for the personal loan.
Generally, these fees may include application fees, origination fees, prepayment penalties, late payment fees, returned payment fees, or payment protection insurance.
Several interest rates on your credit card and personal loan are minimal; the influence of these fees can nullify significant savings.
How To Get A Personal Loan To Pay Off Credit Card Debt
Consolidating high-interest credit card debt with a personal loan is a popular reason for seeking such financing. Below are steps to secure one:
Prepare For The Loan Application
Review your credit report and address any that are not correct. After that, you should collect the necessary documents to demonstrate your financial status and identity for the application.
Explore Different Options
Explore different options by obtaining prequalification from multiple lenders. Keep track of the specifics of each offer, such as the APR, monthly payment amount, term duration, and any additional features. However, this is to assist you in identifying the most suitable offer for your needs.
Assess The Total Expenses
Utilize a credit card calculator to estimate the total cost of paying off your existing debt, factoring in fees and interest charges.
Repeat the process for your preferred personal loan option to ascertain whether it will result in savings. Also, avoid exchanging one debt for another if it will ultimately be more costly.
Apply With The Best Lender
Follow through with the application process for your favorable option. Be ready to present any extra information or documentation requested by the lender.
Receive The Loan Funds
Upon approval, you may receive the loan funds directly from the lender. However, some lenders may choose to send the funds directly to your creditors to settle your credit card debt on your behalf.
Pay-Back Your Loan
Pay back your loan by signing up for auto-pay, which helps prevent missed payments and late fees.
Conclusion
Securing a personal loan to pay off credit card debt enables full repayment and facilitates financial management. However, individuals searching for debt resolution aren’t limited to personal loans.
