If you have credit card debt, you know how frustrating it can be to try to balance multiple credit card payments each month. Will you be able to make more than the minimum payment on each card? How much more? Should you focus on paying off the card with the higher balance or the card with the higher interest rate?
Taking out a personal loan for credit card debt can help you solve many of these problems. You can use your personal loan to pay off your credit card debt in full, and because personal loans often have lower interest rates than credit cards, you could even save money in interest charges at the same time. over time.
That said, paying off credit card debt with a personal loan has its pros and cons. Let’s take a look at the pros and cons and explore some options that might help you pay off your credit card debt without taking out a personal loan.
3 reasons to use a personal loan for credit card debt
Using a personal loan for credit card debt is a form of debt consolidation, and there are a lot of benefits to consolidating your debt into one monthly payment. Here are three of the top reasons to use a personal loan to pay off your credit card debt:
1. You can pay off credit card debt in full
If you have a high credit card balance, a personal loan can help you pay off your credit card debt in full. This will not only give you the peace of mind that comes from being out of credit card debt, but could also increase your credit score.
Keep in mind that using a personal loan to pay off your credit card debt is not the same as freeing yourself from your debt. After you’ve paid off your credit cards, you’ll still need to pay off your personal loan. However, paying off high credit card balances and saying goodbye to the high interest charges that come with them can be a huge financial relief and is one of the biggest benefits of paying off debt with a personal loan.
2. You will likely get a lower interest rate
The average credit card interest rate is currently around 16% APR, but many of the best personal loan rates are closer to 6% APR. While your actual interest rate will depend on your credit score, the amount of money you plan to borrow, and the terms of your loan, it’s quite possible that a personal loan has a much lower APR than your credit cards.
If you take out a personal loan that has a lower interest rate than you pay on your credit cards, you could save a lot of money in interest charges by using your personal loan to pay off your credit card debt. .
3. You will have a monthly payment
Balancing multiple credit card payments each month can be difficult. Personal loans allow you to consolidate your debts into a single monthly payment. This can make it easier to plan and set aside money for your monthly loan payment, which can also help you pay off your personal loan faster.
Remember: the more money you invest in your loan payments each month, the more money you will save over time in interest charges.
Potential disadvantages of paying by credit card with a personal loan
While there are many advantages to using a personal loan for credit card debt, there are also a few disadvantages, including the possibility of ending up with credit card debt again. Here are the two biggest disadvantages of paying by credit card with a personal loan:
Personal loans are another type of debt
While personal loans can help you pay off your credit card debt in full, it’s important to remember that a personal loan is just another type of debt. Once your credit cards are paid off, you won’t be debt free. You will still need to pay off your personal loan and make your monthly payments without incurring new credit card debt. .
It can be difficult to avoid using your credit cards
If you’re used to using your credit cards to cover expenses that you can’t pay off in full each month, it can be difficult to learn how to spend within your means. When using a personal loan to pay off credit card debt, it’s important to avoid building up new credit card balances when you pay off your personal loan. Otherwise, you might find yourself in a worse situation than at the beginning.
If you can make small purchases with your credit cards and pay them off in full each month, you may be able to continue using your credit cards after you pay them off with your personal loan. If not, it may be a good idea to avoid using your credit cards altogether. After your personal loan is paid off, you can resume using credit cards, but only for purchases that you can repay in full at the end of each billing cycle.
How to pay off credit card debt with a personal loan
If you want to use a personal loan for credit card debt, here are the steps:
Apply for a personal loan
Compare personal loan services, review eligibility requirements, and apply for the loan that seems like the best option for someone with your debt and credit rating.
Use the loan money to pay off your credit card debt
In many cases, the money you receive by taking out a personal loan is deposited directly into your checking account. Use that money to pay off your credit card debt, don’t use it for anything else! If you abuse your personal loan funds, you will remain in credit card debt and you will have your personal loan to pay off.
Pay off your personal loan as quickly as possible
Once you’ve paid off your credit card debt, focus on paying off your personal loan as quickly as possible. Make sure your loan doesn’t penalize you for prepayment, and invest as much extra money each month as you can afford.
Avoid using your credit cards to pay off your personal loan
Don’t fall back into credit card debt while you’re paying off your personal loan. Avoid using your credit cards or just make purchases that you know you can pay off in full each month.
Start using your credit cards for purchases you can afford
There is no reason to give up using credit cards forever – there are so many benefits to using credit, including the ability to earn rewards on your purchases. That said, try to use your credit cards only for the purchases you can afford. Credit card debt is expensive, takes a long time, and is a lot more of a problem than it is worth. That’s why many people use personal loans to pay off their credit card debt and get a fresh start.
Alternatives to Manage Credit Card Debt
Apply for a balance transfer credit card
A credit card with balance transfer can help you consolidate your credit card balances onto one card, often making it easier to pay off your credit card debt. Most of the best balance transfer credit cards give you a 12-18 month 0 percent introductory rate to help you pay off your balances while avoiding interest charges.
Negotiate a lower interest rate
If you think lowering your credit card interest rates would give you the edge you need to quickly pay off your credit card debt, try contacting your lenders and requesting a rate cut. Keep in mind that cardholders in good standing will be more likely to receive a lower interest rate than cardholders with a history of missing or late payments.
Learn about hardship programs
Credit card issuers have hardship programs designed to help people who find themselves unemployed or experiencing some other type of unexpected financial hardship. Many of these programs include credit card forbearance, in which card issuers forgo payments (and, sometimes, interest) for a set period of time. If you’re in the middle of a financial crisis, calling your credit card issuer and inquiring about hardship programs can help you avoid getting into debt on your unmanageable credit card.
Consult credit counseling
A reputable credit counseling service can help you manage your credit card debt and suggest options that could help you pay off your debt faster. Whether you want to create a budget or compare debt consolidation options, a credit counseling service can give you the advice you need.
Sign up for a debt settlement service
If you think you’ll never be able to pay off all of your credit card debt, a debt settlement service can help you negotiate a settlement with your credit card company. Debt settlement companies often have high fees, and paying off your debt instead of paying it off in full could hurt your credit score. However, debt settlement is a way to deal with the type of credit card debt that you can no longer handle on your own, so add it to your list of options.
At the end of the line
Taking a personal loan for credit card debt can help you pay off your credit card debt in full and take control of your finances. However, a personal loan is not the only option for people who want to pay off their credit card debt. A credit card with balance transfer, for example, is another good way to consolidate your credit card balances into one monthly payment.
Before taking out a loan, think about all of your options. Make sure the personal loan you are considering offers lower interest rates than your credit cards, and have a plan to pay off your personal loan without incurring new credit card debt. This is the best way to use a personal loan to pay off outstanding credit card balances.
Find a personal loan that’s right for you.