How to Use a Personal Loan to Pay Off Credit Card Debt

Credit card debt can be overwhelming when you watch your bill go up every month. To make it more palatable, break it down into two components.  The first is the principal. How much do you owe before interest is charged? The second part is the interest portion.

Taking out a personal loan to pay off credit card debt won't lower your principal, but it can bring the interest rate down. That's the primary reason to consider this option. Interest rates can be lower on a personal loan vs credit card interest rates.

You may also be able to do balance transfers to other zero or low interest credit cards, so you should explore that option first. This may not work for everyone, though. There are balance transfer fees, and you need a high credit score to qualify.

Searching for a Personal Loan Online

Most online lenders will ask you during the application process if the online loan is for credit card consolidation. Some will even pay your cards off directly, so you don't have to worry about contacting credit card issuers to make arrangements.

There are multiple direct lenders to choose from online. Review the interest rates and repayment terms. Sometimes, a shorter term with a higher monthly payment is a better option, if the payments are manageable. It can lower your total payment over the term of the loan, and help you get out of debt more quickly.

If the math is overwhelming, check the loan agreement. There should be an entry on there somewhere that tells you how much your total obligation will be. You'll also want to check for early repayment penalties.

Don't just take the first offer, even if you have bad credit. Taking a few days before making a decision won't hurt you. Print out each offer and then call local lenders, banks or credit unions to see if they can do better. They may turn you down, but it's worth the effort.

After Your Loan Has Been Approved

If your loan funds are transferred to you directly, pay all of your credit cards off in full right away. If you struggle with spending, it may help to physically cut up or hide your credit cards until the loan is paid off. If you feel you may need your card in an emergency, you can let a friend or family member you trust hold it. The goal is to transfer debt and avoid accumulating more debt, and adjusted spending habits will help you with that.

When the lender pays your cards for you, verify those payments with each of your credit card issuers. Follow that action up with creating a budget that gives you freedom from debt as quickly as possible. Take advantage of early repayment options if you can.

Taking out a personal loan to pay off credit card debt could change your life in a good way. Control your spending going forward and be vigilant about making all of your loan payments on time. In a few short years, you could be out of debt and enjoying financial freedom.   

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances. 

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: Credit Card Debt, Loans, Personal Finance, Personal Loans