Using A Personal Loan To Pay Off Credit Card Debt
Racking up credit card debt, or any kind of debt, can be a stressful experience. Sometimes, life gets in the way of paying it down immediately, which means you could find yourself losing money on interest each month when you carry over a balance.
Fortunately, there are a few ways of paying off this kind of debt. Taking out a personal loan to pay off credit card debt is one option you have. In most cases, the process of debt consolidation is relatively easy. Still, there are some pitfalls you’ll want to look out for. We’ll get into all the nitty-gritty of how it works and how to be careful.
If you think that using a personal loan to pay off credit card debt might be the right option for you, us a call at 866-287-6225 to schedule a free, no-obligation consultation.
What Is A Personal Loan?
To get started, let’s talk about personal loans
. One of the most common types of loans available to individuals, a personal loan is money borrowed from a lender to be paid back after a certain amount of time, called the loan term.
The borrower must make monthly payments, including interest, and must pay off the loan in full. The personal loan details will depend on the borrower’s financial history, credit score, and the lending institution’s specific offer.
Personal loans are most often unsecured and are offered based on the applicant’s creditworthiness. However, personal loans may also be secured by collateral, like a vehicle or savings account.
A personal loan can be used for pretty much any personal expense. The most common uses
include making large purchases, paying off medical bills, and refinancing a car. Of course, personal loans can be used for much more, from funding a wedding to renovating your home. Today, we’ll talk about how to use a personal loan to pay off credit card debt.
Benefits Of Using A Personal Loan To Pay Off Credit Card Debt
Getting a personal loan to pay off credit cards is a great idea in many cases. From lower interest rates to raising your credit score, several benefits come with a personal loan used to pay down credit card debt.
Lower Interest Rates
Credit cards often come with very high interest rates compared to personal loans. If you aren’t able to pay off your balance in full each month, or you’re only able to make the minimum payment, your balance will not only carry over but it’ll grow over time.
Taking out a personal loan to pay off credit card debt means that you’ll get to take advantage of a lower interest rate while also paying off your card. Specifically, credit cards could have an interest rate of up to 20%, while personal loans have an average interest rate of less than 10%.
It can be difficult to keep up with payments each month if you have several credit cards in use at a time. Each card will come with its own due dates and minimum payments that need to be met. When you take out a personal loan to pay off this debt, you’ll be streamlining all of those payments into a single monthly installment on your loan.
Boost Credit Score
When you take out a loan and successfully pay it off by making on-time monthly payments, your credit score will receive a boost. In fact, a personal loan adds diversity to your credit, which also raises your score. With a variety of debt and credit lines, your credit report will reflect that you are a responsible borrower.
Pay Off Debt Sooner
When you take out a personal loan to pay off credit card debt, your monthly payment will make more of a dent in your total debt due to the lower interest rate. Additionally, because the repayment process is streamlined, you’re less likely to miss or be late on a payment—so you don’t have to worry about accruing late charges or other fees. Just remember to keep your spending in check, so you don’t create more credit card debt!
Paying Off Credit Card Debt With A Personal Loan
Paying off credit card debt with a personal loan is a relatively simple process. To get started, you’ll first need to have an understanding of what your current debts are and how much you’re paying each month in interest. Then, you’ll be ready to consolidate your debt with a personal loan.
Ready to get started on the process? Here are the details of how to do it.
Review Your Current Debts & Interest Rates
Before you can get started looking for the right personal loan, you need to review your current debts and interest rates. This will give you a clearer picture of what you owe and at what rate. It could be helpful to create a spreadsheet to include the names of your credit cards, their current balances, their rates, and the minimum monthly payment requirement. You’ll then be able to add up the total balances and total monthly payments.
Look For Balance Transfers At A Lower Rate
After you know what your debt looks like, you can start looking for balance transfers at a lower rate. This is important because it’s the easiest way to save money while paying off your credit card debt.
If you go for a personal loan with a higher interest rate than your current one, you’ll be losing money in the long run, even if you’re able to pay off the card.
Pay Off Your Credit Cards With Your Personal Loan
After applying for a personal loan, you’ll likely receive the amount in full either as a check or a deposit into your bank account. Once you get the all-clear from the transfer, you will use the money to pay off all of your credit cards in full.
Schedule Monthly Payments
With your credit cards paid off, it’s time to plan out how you’ll pay off your persona loan. Personal loans generally come with fixed monthly payments for the duration of the loan, and if possible, we strongly recommend setting up autopay so that you never miss or are late on a payment.
Once the payments are made, you’re officially debt-free – as long as you’ve kept your credit card spending in check during the loan term!
Pitfalls To Avoid
Of course, taking out a personal loan to pay off credit card debt isn’t without a few pitfalls. If you want to avoid increasing your debt, excessive fees, and surprisingly high interest rates, you’ll need to be vigilant in your search for the right personal loan. Here’s what you need to know about potential problems that could arise when you use a personal loan to pay off credit cards.
Adding More Debt
What you’re doing when you take out a personal loan to pay off credit card debt is essentially taking on more debt. This method of paying off your cards will only work if you are careful with your credit card spending after paying it off with the loan. If you aren’t careful and start spending on your cards again, you could find yourself with credit card debt and
a personal loan to pay off.
Applying for and paying off a personal loan can be expensive in terms of fees. As you compare different lenders, make sure you ask about prepayment penalties, origination fees, and late payment fees. If you cannot cover the cost of these, you could find yourself spending more than you hoped to get rid of your credit card debt.
Higher Than Expected Interest Rates
While credit cards have infamously high interest rate, there’s no guarantee that you’ll get a lower interest rate with a personal loan. For example, if you have poor credit, you may not qualify for the best rates for personal loans.
If your credit is suffering, check out the CU SoCal Credit Builder Loan
—a simple way to boost your credit score so you can take advantage of better interest rates.
Where To Get A Personal Loan
Getting a personal loan with the best rates and terms is incredibly important if you want to pay off your credit card debt. You’ll want to be careful that your interest rate is lower and that you can meet the monthly payments.
Banks are often the first stop for people looking for a great personal loan. Borrowing from the same location where you do all of your primary banking is extremely convenient. Having the option of in-person or online financial management is one of the top perks of getting a loan from your bank since most banks now have reliable online services.
Do be aware that banks often have much higher credit score standards, so if your score isn’t fantastic, you might not get the best terms, and you might be denied entirely.
Credit unions are a standout option for getting a personal loan to pay off credit card debt, thanks to their personalized Member service.
Since credit unions tend to be smaller organizations than banks, you’ll get a full-service banking experience with a more personal touch. Plus, credit unions are not-for-profit institutions, so savings are passed on to Members in the form of lower interest rates and fees.
Of course, it can be difficult to find a credit union with a standout online presence because of their size, so if you rely on online banking, this could present an issue.
At CU SoCal, we know how important it is for our Members to keep tabs on their finances wherever they are, so we’ve build a fully functional, modern, and totally secure website and mobile app for your convenience.
Online lenders are becoming more and more common as people take their business and finances online. However, if you need special help, it can be challenging to reach a person over the phone. And because everything is online, this may not be the best option for people who have difficulties navigating websites, apps, or prefer the brick and mortar experience.
Personal Loan Alternatives
If getting a personal loan to pay off credit card debt doesn’t sound like the right option for you, there are several alternatives you can check out. Below are the most reliable ways to get rid of credit card debt without using a personal loan.
Credit Card Balance Transfer
With a credit card balance transfer, you’ll be able to move your current balance of one card to a new credit card. This option really only works if you apply for a new credit card with a lower interest rate than your current one. Some cards offer a limited-time, no-interest introductory period for new Members.
The debt snowball method is a way of paying down your credit card debt in a way that saves you the most money over the long run.
To do this, refer to the spreadsheet you made listing all of your cards, their balances, and their minimum payments. First, you’ll make the minimum payment on every card. Then, check your list for the card with the lowest balance and pay as much as you can with any extra funds you have. Don’t worry about interest rates right now. You’re only looking at the balance.
Once you’ve paid off the card with the lowest balance, move onto the card with the next-lowest and pay that off. Keep doing that until all of your cards are paid off. Take care not to use the cards you’ve already paid off!
This method is similar to the snowball method, but instead of focusing on the balance, you’ll look at the interest rates. After you make the minimum payment on all cards, put any extra money toward the card with the highest interest rate. Keep doing that each month until the card is paid off, and then move on to the card with the next highest interest rate.
Don’t forget that you’ll need to keep making the minimum monthly payment on all cards with both the snowball and avalanche methods.
CU SoCal Personal Loans
If you’re still asking yourself, “should I take out a personal loan to pay off credit cards,” it really depends on your situation and personal goals.
At CU SoCal, we’re here to help, and we know how crucial it is to get the best loan to pay down debt. We offer financing from $500 to $30,000 and interest rates as low as 2.50%, so getting rid of your credit card debt is simple. And if you need a lower monthly payment than your combined credit card monthly minimums, we have you covered with loan terms of up to 120 months.
Apply For A CU SoCal Personal Loan Today!
Give us a call today at 866-287-6225 for more information about our personal loans and other incredible banking products. If you’re ready to get rid of debt now, apply online today for your personal loan.