If you are struggling to pay off credit card debt then you may be wondering if you should take out a personal loan to pay off a credit card or multiple cards. A personal loan is money borrowed from an online lender, credit union, or bank. It is paid off in monthly installments. The typical payoff period is between two and five years.
The interest rates can range from 6% to 36% depending on a number of factors. Many personal loans are unsecured, which means you don’t need to have any collateral in order to get one. You can use the money you get from a personal loan for any reason. This including to pay off high-interest credit card debt.
Should You Get a Loan to Pay Off a Credit Card?
If you have a pile of bills then you need to start making some decisions. You can try to continue to pay each bill each month or take out a personal loan to payoff debt. Every month you are struggling to meet the bill and credit card deadlines is another month that can lead to more expensive fees. Fees will add more to your overall debt numbers. If you are paying only the minimum on your cards then this adds more to the interest you are paying in a lifetime. The best solution would be to pay off your debt as soon as possible and a personal loan can help.
That said, before you jump into another loan to you have to ask this very important question.
Are you saving by transferring your credit card debts to a personal loan, either by lowering your monthly payments or reducing your interest rates? If neither, it’s probably best not to transer your debt. That said, personal loans often carry better interest rates if your credit is at least fair.
Where to Get a Loan to Pay Off a Credit Card
In order to get a personal loan to pay off a credit card, you have to start with the lender. While traditionally this meant visiting a bank in hopes that your application would be approved, you have more options today. One of the most popular ways to get a loan now is with an online lender. With loan places online, customers can truly shop around for the best interest rates and the best loans for their unique situation.
Finding the right loan from the start can be an important step in taking control of your financial future. And you already took the first step, by coming to Loanry. We connect you with reputable lenders to make the application process a bit easier and less time-consuming for you.
What Factors Go into a Personal Loan Rate?
Lenders can make their decision about you getting a personal loan to pay off a credit card based on a number of different factors. This can include credit score, debt-to-income ratio, and credit report. It’s not surprising that those with good credit will get loans with the lowest rates.
There are also lenders that will offer personal loans to those with bad credit. However there are usually fees associated with this. For those who don’t qualify for a personal loan, there may be other options. Among which secured loans or loans that require a co-signer. I’s best to compare rates from multiple lenders before choosing.
The loan with the lowest interest can usually be the least expensive but you should also look at other things such as repayment details. Many lenders will allow you to see the estimated rates without an impact on your credit score. An online loan marketplace can also make it easier to compare several loan offers all at once. Once you qualify, you are able to get the money from a personal loan as quickly as the next day.
Finding the Right Personal Loan to Pay Off a Credit Card
In order to find a personal loan to pay off a credit card, you will first need to figure out what you are searching for. You need to consider your needs, your credit, and your current financial situation.
How You Will Use the Loan:
If you are getting a personal loan to pay off a credit card then this could affect your choices. Personal loan providers will generally allow you to use the funds for any purpose but some could have limits. There are even companies that will focus solely on credit card consolation loans.
How Much You Need to Borrow:
Once you know how you are using the loan, you can figure out how much you need to borrow. You need enough to pay off the costs of your debt. Do not forget with any fees that you don’t want to pay out of pocket. You can use an online calculator to help you figure out how much you need and help add up credit card balances. Many lenders will have a minimum and maximum balance you can have for personal loans. This number is important to note since it can limit the number of lenders that are available to you.
Look at Your Financial Situation:
You don’t want to get in a worse debt situation by taking out a personal loan that will stretch your finances too much and you can’t pay back. How do you currently feel about your financial situation? Are you constantly scrambling to avoid falling behind on your bills? If you are struggling to make minimum payments then a personal loan may not help. Instead of considering new debt, you may want to look at different ways you can realistically handle your debts.
Calculate Monthly Payments:
Before you get a personal loan, you need to make sure you can actually afford the monthly payments. This means choosing terms that will result in an affordable payment. Payments for these loans can be determined by the initial balance, the repayment length, or an interest rate. An online monthly payment calculator can help you see how different loan terms can affect the monthly payment. When you are getting personal cash loans, be sure to keep these payments in mind.
Check Your Credit Score:
Once you understand your current financial needs, you need to check your credit score. You can view free reports online. This will show you how your credit history will be viewed by lenders. You will need to check the lender’s requirements to see if your credit score will match with their application. A good credit score for a personal loan will be at least 680. With this score or higher, you can get a wider range of personal loan options and a lower interest rate. If your score is lower than 580 then you shouldn’t panic. There are still personal loan options for those with bad credit. However, you may have to do more legwork to find the loan and pay more.
How to Get a Personal Loan to Pay Off a Credit Card
Once you learn more about what type of personal loan to pay off a credit card you need, you can then compare personal loan companies to find the right loan. As you shop around for personal loans, you want to compare offers to find the best provider. Be sure to check out loan companies of all kinds, including those online lenders. The various types of lenders have different business models and structures, which means that they will have different interest rates, fees, and underwriting processes.
Identify any lenders that meet your needs.
As you are looking at each one, check the loans against the list of requirements. If you have a great credit score then your goal may just be to keep costs to a minimum. If you have a lower credit score then your goal is to look for lenders that will actually approve your application. Be sure to research the credibility of each lender in order to make sure the offer is legitimate. It’s best if you can try to find three lenders that meet your credit requirements and personal loan needs.
You should get multiple personal loan pre-approvals so you aren’t just settling for the first lender you come across. In order to get the best deal on your personal loan, you need to have different options. You can get these options when you have pre-approval from different lenders that meet requirements on your checklist. In the pre-approval process, a lender will ask for information, including your name, contact info, employment history and income, and loan details such as how you intend to use the loan. The process can also involve a credit check. Make sure the lender is using a soft credit pull so that it won’t affect your credit score. Lenders will use the information they gather to see if you would be a good fit before they give you pre-approval.
Compare interest rates
Once you have pre-approval then be sure to compare interest rates. One of the most important factors that determine the cost of the personal loan is the interest rate. The lender will need to be clear about the interest rate. Reputable lenders will be transparent about their rates. Chances are high that the personal loan with the lowest interest rate will also be the most cost-effective option. However, you still need to make sure you can afford the monthly payments.
Be sure to watch out for other fees.
The lender should be upfront about the costs and work with the borrower in order to calculate interest. Some lenders will charge an origination fee, although some won’t charge this fee at all. Some lenders that don’t charge fees have higher interest rates. You have to look at everything when determining the right loan for you.
Paying Off Your Personal Loan
Once you have used a personal loan to pay off a credit card, you still have to pay back the loan. Paying off a loan early may have a few consequences for your credit. These consequences may not be negative but it depends on your current credit situation. If you wait to pay off the loan and follow through on the terms of your contract then your credit score can benefit. If you pay off the loan early then it’s possible you can see a drop in your credit score. The reason this happens is that lenders want to encourage customers to pay the entire interest of the loan. If you pay it off early then you aren’t paying interest on the loan and it will reduce the money that a lender can make on you.
Paying off your loan early then it doesn’t matter if you have a bad or good credit score because everyone’s score will drop slightly. If you pay off the loan early, it also reduces the number of credit lines you have open, which is a factor in credit scores. The longer you have an account open, the better it is for your credit score. When you close an account early then you will shortchange your credit age.
Pay off the Loan Early if You Can
However, even with a slight ding in a credit score, it may make sense for you to pay off the loan early. When you pay off the loan early then you are getting out from under a pile of debt. There is a psychological burden of being in debt and you can free yourself from this by paying off your loan early. This will help reduce any financial stress and a number of health concerns that can come from stress. You will no longer have to be paying interest on the loan and can avoid any potential late fees. Having no more payments increases your spendable income that you can put toward savings goals.
What Is Debt Consolidation?
Debt or bill consolidation is the process of consolidating your debts and taking out a loan to pay them off at all once. Getting a personal loan to pay off a credit card has become a popular option for many people because it can help pay off high-interest debt and save money in the long run. It can help you pay off debts sooner and you can avoid being in debt for an extended period of time. There are some advantages and disadvantages of debt consolidating that you should be aware of in order to do what is in your best interest.
You can do debt consolidation in a number of different ways.
A personal loan to pay off a credit card is a popular way to do debt consolidation. Looking at different loan places will allow you to find the best personal loan for your situation. Before you apply for this type of loan, be sure you have a plan on how to pay off the debt. Personal loans can be good for those with moderate debts. It also helps if your credit score is higher, as you will get a better rate. Those with low credit scores may not qualify for these types of loans or have a loan with a much higher interest rate.
Depending on your credit card, you may also be able to do a credit card balance transfer. Some providers will make you pay a fee before you are able to do a balance transfer. If you have a good credit line then you may have a bit of leeway in how much you are able to transfer. The interest rates on credit card balance transfers can also be very high.
Home equity loans are a secured loan that you can get if you are a homeowner.
You use your home as collateral to get a home equity loan. The advantage of these loans is that the rate is not as high as other loans. Secured loans can also be easier to get because the lender has some way of getting their money back. Keep in mind that if you are unable to pay back the loan, you will lose your home. This can be a dangerous option unless you are sure you will repay the loan.
Advantages of Debt Consolidation
The main advantage of debt consolidation is that you can make one monthly payment for your debt, which can make it easier for you. Having one monthly payment can make your debt easier to manage, especially if you have a hard time keeping track of all your debts. If you choose the right option for debt consolidation, then you may be able to save money in the long run by paying less interest than you would normally have otherwise. Be sure to understand the terms of your personal loan to pay off a credit card so that you aren’t hit with fees for paying it off early or getting into more debt.
Disadvantages of Debt Consolidation
The success of debt consolidation will depend on your credit score. If your credit score is bad, the interest on a loan can be higher than what you are currently paying. Interest rates can vary depending the market conditions and the loan type and you can never predict when they might rise. The repayment period can be long and, if it’s too long, you can end up paying more in interest. Even though it feels like you are getting out of debt and have less of a debt burden, you do still owe a bit of debt and should still refrain from using credit cards irresponsibly. Since you are only making one monthly payment, you can also be tempted to take on other small loans and think you can pay them off quickly.
Can Debt Consolidating Hurt Your Credit?
If you want to keep your credit score high or work toward improving it then taking care of your debt in an efficient and timely manner is important. There is a bit of irony with debt and credit because the lower the score you have, the more expensive it is to pay off. If you have a high credit score, such as 750 or better, then you can qualify for credit cards and lower interest loans. Decent scores between 650 and 730 can also get lower interest rates. If your score drops below 640 then interest rates can be as high as 20%.
Paying back debt can then feel like an impossible task. There are products out there, such as a personal loan to pay off a credit card, that can help you get back on track. A personal loan can actually help your credit score if you pay it back each month on time and don’t pay it off early. If you miss payments or are late then your credit score can suffer.
Benefits of Credit Card Use
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One of the benefits of credit card use is that you get a replenishable line of credit. You can pay for purchases over an extended period of time and get more flexibility. There are a number of benefits of responsible credit card use. A basic credit card is a form of a loan that you will get from a financial institution such as your credit union, local bank, or online lender. You can also get credit cards through stores that have specific benefits when used at that business. It’s all just a fancy loan.
The credit limit will be how much you can borrow at one time. You shouldn’t borrow up to your limit since you will pay interest on what you currently loan. Unlike a traditional loan, monthly payments are based on how much you have used instead of the total amount that is available to you.
Many credit cards will have fraud protection and other customer assistance. It can be much easier to dispute a charge on a credit card than other forms of payment. If you do ask the credit card company to dispute a charge for a legitimate reason then you have more leverage. While this may not be one of the first things you think about with credit card use, it’s important when you need it.
In a world that is becoming less cash focused, credit cards can help you keep track of where your money is going. Some people find it easier to manage their budget with credit cards or adjust spending habits. The month’s purchases are laid out and you can see your spending records when you look at your credit card bills. However, this benefit is only good if you are actually paying most of the balance each month in order to avoid late fees or interest.
There are ads all the time for extra cash back or extra miles. These promotions are usually offered with the awareness that many people aren’t going to make enough use of them to offset other fees or interest accruing on the card. However, responsible card users can benefit from these promotions if they do it correctly. Credit card management includes paying attention to the pros and cons of each card when you are deciding which cards to get and which cards to use in your daily life.
Build Your Credit:
In order to build your credit, you need to have credit. Building credit is the best reason to have a credit card and use it responsibly. If you have a limited credit history or a spotty credit history, credit cards can make things better over time. Almost everyone can qualify for a card, but if you have bad credit or no credit at all, your card will likely have higher interest rates at first. Make some small purchase and then pay them off. Continue doing this and then after a year, ask the credit card company for a better interest rate or find a card with a lower interest rate. Don’t cancel the current card but stop using it. Having available credit is one way to improve your credit score.
Rebuild Bad Credit:
If you have really bad credit and a card, even with a high interest rate, isn’t possible for you, then you may want to consider a secured credit card. This is one where you deposit a set amount of money upfront. This card operates like any other credit card but you can’t spend above the amount you have on deposit. This may sound like a debit card but it has all the benefits of a credit card. Payments on the secured card are treated just like payments for any other debt when it comes to credit reporting. If you make your payments and avoid maxing out the card then you can qualify for an unsecured card and get a higher limit. If you keep using the card responsibly then you can also start to qualify for lower interest rates.
Dangers of Credit Card Use
While there are plenty of benefits of credit card use, there are also some dangers you should keep in mind.
Designed to Keep You in Debt:
Credit card companies need a majority of their customers to keep spending and then keep paying interest. They don’t want a lot of customers who just pay off their balance every month. Unlike other loans, such as personal installment loans, credit cards are designed to keep you using and paying. Once you know this, you can find a balance on which cards you are using.
Interest Fees Can Add Up:
It can be easy to lose track of how much you are spending and how much you are paying in interest and other fees. Credit cards will usually have a high interest rate even if it starts out low.
Minimum Payments Are Like Other Payments:
When you pay any other bills, you are caught up or make a dent in your debt. If you are just making the required minimum payment on the credit card, your balance won’t go down much. It may even go up, even if you don’t make any additional purchases. Minimum payments are designed to keep you paying fees and interest on the card without your balance going down. If you have a high balance then you can fall further into debt each month. It’s better to make just the minimum payment instead of not making a payment at all, but you do want to find a way to pay down the balance more consistently if you are going to get out of debt.
Allow You to Be Impulsive:
Credit cards can offer a lot of freedom and can cause you to be impulsive. Many people don’t think of it as spending money until they get the bill at the end of the month and it’s much higher than they thought.
Interest on a Credit Card
Like with any loans, you will pay interest on a credit card. Interest on credit cards is called APR (annual percentage rate). You can avoid paying interest if you pay your balance in full each month. The APR for credit cards will be calculated on the balance on your card. Another item that makes a credit card different than a traditional loan is that once you pay back what you borrow then that money becomes available for you to use again. While this is a great feature to have, you do need to pay attention to the interest on the cards, as interest is one thing that can get people into trouble when it comes to credit card debt.
Getting a personal loan to pay off a credit card can be a good choice if you do your research and pick the right lender. Before applying for loans, spend some time paying attention to your credit score to see if you can qualify. This will help you look for lenders that can help you get a loan. Debt consolidation has many benefits if you are able to find the right loan lender and research the process. Credit cards also offer many benefits but you have to be careful about their use so you don’t end up in a situation with debt that you will never be able to pay off. The interest rate on credit cards is what makes them dangerous. If you are looking to pay off some credit card debt, do your research into personal loans.
Kevin Strauss is a personal finance writer and homeowner based in the Los Angeles area. Being in one of the most expensive markets in the country, he’s learned to maximize resources to plan for both his monthly expenses and future financial needs. Kevin has a passion for helping those in a similar situation navigate the complex world of personal finance so they can pay down debt, plan for the future and live out their dreams. In addition to covering personal finance in depth on Loanry.com, Cashry.com, Debtry.com, Budgetry.com, Billry.com, Creditry.com and Taxry.com. Kevin shares his expertise with readers who want to create budget-friendly habits across the web.