Should I Use A Personal Loan To Pay Off Credit Cards?
Like many of us you have probably thought about what the best approach is when it comes to paying down debt. One solution is to take out a personal loan to pay down credit it cards - but is it more harmful than helpful?
The simple answer is that there is no simple answer. Finances are highly subjective and vary wildly from personal to person. It is not entirely about the numbers either - it’s also about your own spending and saving habits, your income, your living situation and so on.
It’s Not A Bad Idea
Taking out a personal loan to pay off credit cards is not a bad idea. If you are someone with debt in the thousands on multiple cards (or even one) you could save a lot of money every year paying a loan with a lower interest rate than your credit cards.
For the most part personal loans carry an interest rate of under 10 percent whereas credit cards average around 16 percent. If you have a large balance a high interest rate can cost you hundreds or even thousands every year making it harder and harder to get a handle of.
A Better Idea If You Have A Lot Of Debt
If you are only a couple thousand in debt a personal loan may be an unnecessary step. Personal loans are generally issued in a minimum of around $5,000 so if your debt is much lower you can probably modify your spending to pay it down - after all, adding a 36+ month loan to pay it off could just be dragging that debt out longer.
You Need Decent-ish Credit
Using a loan to pay off debt to save on interest is only viable if you have decent enough credit to get a rate that is lower than your credit card. Most people will have no problem with getting a rate under their credit card but if you have truly bad credit you may not find the difference that beneficial. Go ahead and see what you can get! Different banks offer different rates so shopping around for the right one will be worth your time.
You Have To Modify Your Spending
If you pay off your debt with a loan you have to commit to modifying your spending. If you continue as you were before you will rack up that debt again in no time and now you’ll have your loan repayment on top of it!
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