There are several reasons why people apply for a personal loan, like buying a new car, some new electronics or furniture, or even paying some medical bills. However, it appears that paying credit card debt is nowadays one of the most popular uses for such loans.
And it’s not that difficult to understand why those who are doing it opt for this!
Simply put, by using a personal loan to pay off credit card debt, they are directly eliminating any monthly high-interest card payments, then consolidate the debt into just one monthly personal loan payment. In most cases, at a reduced cost!
But is this a good decision? Let’s weigh in both pros and cons and find an answer, shall we?
Benefits of using personal loans to pay off credit card debt
If you’re only trying to get out of debt as fast as possible, then this could be the best solution. In fact, a personal loan might as well come with a few extra benefits!
Specifically, you may earn a lower interest rate, as the best ones charge less than 10%, allowing you to cut the total interest payment in half. Also, you will make just one monthly payment rather than many, which will surely free up some time for other responsibilities.
Of course, we should forget that taking a personal loan involves a very strict hard credit check, but can impact your credit score positively, by increasing credit mix and showing creditors and lenders that you are actually responsible with money since you’re carrying many different types of both credit and debt!
Drawbacks of using personal loans to pay off credit card debt
Ok, so there’s no doubt there are several advantages if you opt for a personal loan to pay off credit card debt. But on the other hand, there are a few minuses you should definitely take into consideration before applying!
Before everything else, don’t forget that a personal loan could lead to more debt. Use this option only if you don’t have others, like increasing credit card payments monthly or opening a balance transfer credit card. Then, there’s the possibility of not getting a lower interest rate. If you don’t have the best credit score, you can eventually qualify for a loan, but the interest rate could become higher than what you’re currently paying. And finally, don’t ignore the fact that personal loans do come with some fees too, like late payment fee, origination fee, or insufficient funds fee.
Once again, a personal loan could be a solution for your credit card debt problems, but think very well about both pros and cons before applying for one!