If you are struggling to pay off debt, you might wonder is it worth it to do to get a personal loan to pay off debt? Well, the answer is it depends. In certain situations and with varying financial products, you will save money by choosing to go personal loan shopping. Take a look at these common questions we hear among consumers trying to dig themselves out from under mountains of debt.
Is It a Good Idea to Take Out a Loan to Pay Off Debt?
For consumers with stacks of bills piling up, it is time to make a decision. Do you try to continue paying each monthly payment or take out a loan to pay off your debt? Each month you struggle to meet deadlines leading to some expensive late fees. This only adds to your overall debt.
In addition, you might pay only the minimum payment on some credit card debt. This simply adds on to the amount you pay in interest over your lifetime. The smarter solution, in this case, is to pay off your debt as soon as possible. If you are short on cash, you may consider taking out a personal loan to cover your debt.
Even if you are not struggling to pay off your debt, you can still benefit from taking out a personal loan to cover your total debt. In fact, this can be a smart financial move to make. If you get a personal loan with a smaller interest rate, you can use this to pay off your debt so you avoid paying more on interest costs in the long term.
Can You Pay Off a Personal Loan With a Credit Card?
You can pay off a personal loan using a credit card. In fact, you can save money on your total interest by doing so.
However, you want to make sure you get a credit card with a lower interest rate than you are currently paying on the debt.
Choose credit cards that allow you to directly transfer your balance to the card. The only stipulation is that you need to have a balance on your credit card that will cover your debt.
Does Paying Off a Loan Early Hurt Credit?
Paying off a loan early has a few consequences to your credit. These can be both positive and negative depending on your existing credit situation. If you wait to pay off the loan throughout the entire terms of the contract, your credit score is benefited. However, if you pay it off early, you will see a slight drop in your score.
The reason is to encourage consumers to pay the entire amount of interest in a loan. After all, if you pay off a loan early, you no longer have to pay interest on that loan. This can save you a great deal of money on interest costs. It also reduces the money lenders make on consumers, which is why credit scores drop some when paying off a loan early.
Cons of Paying Off a Loan Early
According to the Credit Karma community, having a good or bad credit score before paying off the loan early makes no difference. Everyone sees a credit score drop in this situation. If you pay off the loan early, and you close out the account, this reduces the number of credit lines you have open.
As a result, your total credit to debt ratio is skewed significantly. For example, if you have an auto loan of $45,000 and you pay it off in 27 months instead of 50, you suddenly decrease your total credit by that full amount.
Also, once you have paid off the auto loan, it is no longer listed among your aging accounts. The longer you have an account open, the better it is for your credit score. By closing an account early, you automatically shortchange your overall credit age. As a result of this, you may see your credit score drop after paying off a personal loan early.
Pros of Paying Off a Loan Early
Even if your credit score is dinged slightly for a short period of time due to paying off a loan early, the benefits far outweigh the cons. By paying off your loan early, you are getting out from beneath that debt. The Balance points out this frees you from the psychological burden of being in debt. This can help reduce financial stress and a whole slew of health concerns stemming just from stress.
In addition, you no longer have to pay the interest, potential late fees, or actual loan payment. This increases your spendable income and can be put towards other debt, savings, or spending needs. If you are paying a high interest rate, then paying off a loan early is a huge plus as it reduces the amount you will pay overall.
How Does Debt Consolidation Work
One popular way to do this is through debt consolidation. Debt consolidation places all of your high-interest loans in a single monthly payment with a much lower interest rate. This helps you in a few ways. To start with, debt consolidation organizes the debt so you can finally wrap your mind around the amount of money you owe.
Consolidating your high-interest bills to a single monthly payment also greatly reduces the task of keeping track of your bill payments. You only have a single payment to deal with each month instead of 10 or 20. More importantly, when you pay off your loans using debt consolidation, you drastically reduce the amount of money you owe overall.
How to Get a Personal Loan to Pay Off Debt?
Getting a personal loan to pay off debt starts with finding a lender. Traditionally, this meant visiting a local community bank with fingers crossed that your application will be approved. If not, well if you live in a rural area or proverbial banking desert, you were stuck without a personal loan option.
Other ways to get a personal loan online include credit unions, trusting individuals, or with online banks. In fact, one of the more popular methods of the 21st century is to get a personal loan online. With online banks, consumers can truly shop around for the best interest rates and banking services. This helps you take control of your financial future as you get a personal loan to pay off debt.
Go Personal Loan Shopping Today
At Loanry, we offer a way to bypass the old school way of getting a personal loan for paying off debt. Instead of spending your time searching for lenders willing to take your loan application we help you find a lender to get quick cash loans online.
Our personal loan lenders may be ideally suited for paying off high-rate interest loans. Choose quick cash loans to find a lender who may be able to help you find a loan option. You can also compare credit cards to consolidate debt.
Ethan founded Goalry, Inc in Dec 2016 with the mission to build the world’s first and only Financial Goal Mall. One place to reach financial goals and comparison shop for any money matter. Taub invents the IP for the finance stores within the mall, while overseeing various aspects of the company. He also has orchestrated the company’s earned media across the finance stores: Accury®, Billry®, Budgetry®, Debtry®, Cashry®, Creditry®, Loanry®, Taxry® and Wealthry®. This includes over 1200 blogs, 400 videos, thousands of social post and publications that have been featured across the web.