When you have an outstanding credit card managing multiple payments every month can be a real challenge. The situation can be overwhelming and stressful leaving you wondering whether you can afford to pay more than the minimum payment each month.
You might also be unsure whether you focus on paying off the card that has the higher limit or stick to paying off the card with the lowest limit. This will leave you feeling stuck and frustrated.
Something you can do to help you get out of the situation is to get a personal loan to consolidate your debt into one simple payment. This will not only lower your monthly interest but help you save money on interest over time.
Personal loans are great options because they will come with lower interest than credit cards and you’re able to get longer terms helping you get a lower payment. But just like anything in life there are pros and cons to itchy options, before considering pursuing a personal loan it is important to understand what it is and how it works.
A personal loan will be a type of loan that can be secure or unsecured and that is an offer by lenders. Typically personal loans are designed to be borrowed as fixed amounts and can be used for anything the borrower needs it for.
Usually, personal loans will have fixed terms meaning that the loan will have the same payment and same interest throughout the loan. These types of loans will be mostly unsecured meaning there is no collateral backing them, due to that lenders have much stricter approval criteria.
The interest rate on a personal loan will usually be higher than some other loan types but will highly depend on the borrower’s credentials. To approve you for the loan lender will look at things such as your income, credit score, credit history, job history, and other personal information to determine your qualification.
Personal loans can be amazing options for many borrowers but you should always look into all of your financing options to make sure you’re getting the best loan for your needs.
Selecting the right loan choice that is right for you is important to make sure you’re maximizing your savings. Just like any other loan options you should always compare the rates with a different lender and consider other avenues of paying for your expense.
Here are some advantages and disadvantages of using a personal loan for credit card debt:
Lower Rates: Personal loans tend to have lower interest rates than credit cards.
Fees and charges: Personal loans might have additional fees and charges.
Fixed Payments: You will have the same payment for the whole period of the loan helping you plan ahead.
Risk of new debt: When you pay off your current credit card debt with a personal loan you have a blank credit card and sometimes might end up in the same situation.
Debt consolidation: A great way to combine all of your debt into one single payment helping you save on your interest.
Longer terms: Personal loans will come with longer terms meaning you are stuck making payments for a long period of time.
Improves your credit: Using a personal loan to pay off your current debt will usually increase your credit score.
Qualification criteria: Qualifying for a personal loan could be challenging due to the loan being unsecured.
Before applying for any loan be sure to check your credit worthiness, this will be one of the most important factors they consider.
Figure out how much money you need to borrower and what the funds will be used for. This can help you choose the right lender for you.
Before applying with any lenders be sure to compare all of the options available to you making sure you secure the lender with the best rates.
After selecting the right lenders for yourself and gathering all the documents they need, its time to fill out the application and wait for the response.
Even though personal loans are amazing options to consider when you’re looking to pay down your credit card debt, they should be your only options.
With thousands of lenders out there, you have access to many loan options that might be the right choice for you. Before applying for a loan be sure to consider other options available to you such as:
Balance transfer credit card: A balance transfer credit card can help you cover all of your debt with a zero percent card usually offered for a limited time. Typically balance transfer credit cards offer you an easy way to transfer all of your debt into one place and give you zero APR for a limited time.
Home equity line of credit (HELOC): If you own a house this can be a good way to access some cash. HELOCs are revolving lines of credit that will use your home as collateral usually offering lower inters rates than many loan options. But be sure to understand that your giving your home as collateral which can be seized if you don’t make your payments.
Asking for help: Many of us have friends and family who will be eager to help us with our situation. Asking a friend or family can help you access some funds for a period of time helping you get funds with no interest and might be a good choice to pay off some debt.
401k Loans: Having a retirement plan can give you the ability to borrow against it to help you pay off your debts. Usually, these types of loans will come with lower interest because of the collateral but should be used in an emergency after you have exhausted all of your options because it can jeopardize your retirement.
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