Navigating the path to becoming free of credit card debt can be tricky – many Americans are in the same boat as you. Credit card interest rates in our nation tend to lie between 17% and 18%, and some providers charge even more. The aggregated credit card debt in the United States is a staggering $841 billion, with the average citizen owing $5,221. However, have you contemplated taking a personal loan to clear your dues?
If you hold a couple of high-interest credit cards that are causing you stress, a path to consider is availing a personal loan to consolidate and simplify your debt situation. This piece will guide you through the process of settling your credit card debt via a personal loan, the benefits and drawbacks of resorting to personal loans for debt consolidation, and alternate paths you could consider.
WHEN TO CONSIDER DEBT CONSOLIDATION
Each individual’s financial state of affairs vary, so it’s crucial to weigh the benefits before opting for a course of action. A personal loan can be advantageous when it ameliorates your debt situation in one or more of these ways.
REDUCED INTEREST RATES
Personal loans might carry lesser interest rates than your credit cards. Depending on your repayment span, this could help you conserve money.
Bear in mind that interest rates are ever-changing, and the rate you procure on a personal loan is influenced by numerous factors like monetary policy, inflation, bond markets, and others. A better credit score could fetch you lower rates.
MANAGEABLE MONTHLY PAYMENTS
Consider if your monthly credit card dues exceed your budget. A personal loan can reduce this burden by spreading the repayment over a longer term. However, note that longer tenures can sometimes result in higher interest costs.
CONSISTENT INTEREST RATE
The interest rate on a personal loan when used for settling credit card debt is preset at the loan’s initiation, protecting you from future hikes.
EASIER PAYMENT TRACKING
Paying off credit card debt with a personal loan ensures a fixed repayment schedule, making budgeting simpler.
SIMPLIFYING YOUR FINANCES
Keeping track of numerous credit card payments each month can be challenging. Consolidating your credit card debt with a personal loan reduces this to a single monthly obligation.
QUICKER DEBT ELIMINATION
High-interest credit card debt often traps people in a debt spiral that seems never-ending. Availing a personal loan gives a finite number of payments, bringing you gradually closer to a debt-free status.
CREDIT SCORE IMPROVEMENT
Timely payments on a personal loan are recorded by the three credit bureaus (Experian, Equifax, and TransUnion), gradually boosting your credit score.
However, utilizing a personal loan to settle credit card debt isn’t free of pitfalls. Among them are the potential for accruing more debt, unexpected expenses, and higher interest rates than anticipated. As you explore different lending options, be aware of costs related to prepayments, origination, and late payments. Make sure that these don’t lead to a bigger expense than what you planned to escape from.
