pros and cons of using a personal loan to pay off credit card bills
credit cards are a reliable source of funds which you can use to spend on shopping, utility bills, vacation, or emergencies. with the help of a credit card, you can make your expenses now, and pay for it later, before the deadline.
but, if you do not pay the credit card bills and clear your dues on time, the credit card issuer will impose additional interest and might charge a late payment fine.
interest rates on credit cards are quite high sometimes. paying just the interest chips out a large chunk from your salary and becomes a recurring nuisance.
if you are under the burden of credit card debts, you may be wondering about the various options available to get out of debt and find a way out from high charging credit card bills.
one of the methods is through a personal loan. but, is it really the right thing to do?
taking a personal loan to pay off credit card bills
when you are considering your options, you may feel that taking a low-interest personal loan to pay off a highly charging credit card bill sounds like a good plan.
however, while taking a personal loan, you need to look at all the hidden terms and conditions, in addition to the interest rate and duration of payment.
before opting for a personal loan to pay off credit card debts, you should consider the repayment term, and the interest rate offered by the lender. there are some benefits of long-term personal loans too.
a long-term personal loan decreases the monthly payments, and hence as a salaried individual, you can pay off the interest more conveniently. if you are unable to afford high monthly instalments, personal loans with a longer-term can be the right choice for you.
you need to have an excellent strategy to clear off your debts and must choose a personal loan that suits your needs.
benefits of taking a personal loan to clear off credit card debt
low rate of interest
generally, loan interest rates are lower than credit card interest rates. in some cases, interest rates on personal loans are almost half of credit card interest rates.
compare the annual percentage rate (APR) of different loans from several other providers. with a lower APR, you can save a lot of money every month.
consolidating loans
one of the biggest problems of salaried individuals is that you will never have enough time to formulate a plan to clear all of your debts. moreover, the tension and stress at work will often make you forget things.
if you have more than one credit card, it can be challenging to keep track of their payment dates, and bill amounts. the debts accumulated on each of these cards will be tough to manage without a well-thought-out strategy.
hence, you can avoid all the hassle by consolidating all of your credit card debts in a single personal loan.
by taking a personal loan, you can pay off all other loans and only worry about the personal loan. instead of paying at multiple sources, you can just make one single payment every month, which will both be easy to remember, and also easier to manage.
payoff date
you may sometimes feel that you can never get out of your credit card debts, and you can never be financially free with payments accumulating every month. you keep making those payments; but in the end, it seems that it keeps going on forever.
however, when it is about a personal loan, you can have pre-defined terms for the duration of payment, and check all the terms and conditions along with the interest rate. hence, you now have a definite plan to clear your payments, which will push you to clear off the dues.
if you take a personal loan to clear your credit card debts, you should be aware of how many monthly payments should be made to be debt-free within the payoff date.
credit score
loans are capable of improving your credit score. after you have successfully cleared off your debt in due time, you will find that the credit score will stop its free fall, and will improve with time as you have cleared off all the credit card debt and the loan on time.
hence, if you are not capable of making your credit card payment on time, you should opt for an affordable personal loan to be able to clear monthly debts on time and maintain and a healthy credit score.
drawbacks of clearing credit card debt through personal loan
taking a personal loan to clear off credit card debt is neither as rosy nor as easy as it sounds. since you may already have taken a lot of loans, the chances are that your credit score is low, and applying for a personal loan may be difficult.
availing a long-term personal loan means you will have to pay your interest for a more extended period. hence, the total interest paid will sum up to be more than that of credit card debt interest, and you may end up paying more than the credit card amount.
you may also consider releasing some of the credit cards that you own which were previously in debt after consolidation to a personal loan. however, doing this can significantly hamper your credit score. this is because, unlike previously, you will now have more debt on an average per credit card.
hence, instead of deleting cards from your stock, you need to manage them more efficiently. one way to do so is by using a service like CRED, which not only helps you remember the due dates but also rewards you for paying your bills.
it is always best to stay out of debt, rather than to rush to apply for a loan, where you will still be required to pay interest. some of the other ways for you to stay out of debt are to pay your credit card debts systematically, either by clearing the highest interest rate cards or clearing off the maximum debt. you can also avoid the entire debt issue if you pay your bills on time.
conclusion
you should try and make credit card payments in a more systematic manner and not end up at a point where you require a loan to pay off the debt. although a personal loan has its advantages, it may not always be the best option.
while it may be a temporary situation; in the long run, you need to be aware of your payment habits and learn from your mistakes to correct your spendthrift attitude.