Credit cards are good for shopping, booking tickets, making online payments, earning reward points, and so on. If you can pay off the balance in full every month, then it’s great. You’ll build a positive payment history, and your credit score will go up. However, if you make only the minimum monthly payments, then your outstanding balance will increase gradually. It will hurt your financial life in 2 ways:
First, it will hurt your credit score.
Secondly, you’ll have to pay high-interest on the outstanding balance
If you can’t afford to pay high-interest rates on your credit cards, then you can explore various options to pay it off. One such option is a personal loan or a debt consolidation loan.
How can you use a personal loan to pay off credit cards?
Many banks and financial institutions offer personal loans at a low-interest rate in the US. These loans (also known as debt consolidation loans) help you to eradicate your credit card debts. The loans charge lower interest rates than credit cards. So, when you start making debt payments on the loan, you have to make low monthly payments, and that won’t hurt your budget.
Should you pay off credit card debt with a personal loan?
It depends on the terms and conditions of the personal loan you qualify for. If the interest rate on the personal loan is low, then it makes sense to use it for paying down your debts. You can save money every month. Given the current economic situation, it’s extremely important to save money. Otherwise, you’ll be in big trouble when a recession hits the country. Pandemic has created a global economic crisis. So, you should try to save money and boost your emergency fund. A personal loan at a low-interest rate can help you to do that.
Usually, personal loans come with a fixed interest rate. This means you have to pay a fixed amount every month. So, you know exactly how much you need to set aside for the monthly payments. Moreover, instead of making multiple payments to several lenders, you have to make a single payment every month. So, you don’t have to remember multiple due dates every month. The probability of missing payments is also less.
What to do after paying off credit card debts with a personal loan
Once you pay off credit cards with a personal loan, you’ll feel relaxed and happy. A great burden has been unloaded from your shoulder. However, you shouldn’t start celebrating at your home right away because you’re still in debt. You have a new loan on your shoulder. You have to pay it off as soon as possible. M
Moreover, you have to take the following steps to make your financial life stable.
1. Lead a frugal life: Spend money judiciously. Don’t waste money. Rather, lead a frugal lifestyle to save as much money as you can. Travel in public transport (after the pandemic is over), lower your electricity bill, eat homemade foods, etc. Don’t use credit cards if you can’t afford to pay the bills. If you use credit cards to buy what you can’t afford, then you’ll be in debt again. That would be terrible. How many personal loans will you take in your lifetime?
2. Make payments: Try to avoid defaulting on the personal loan. Make monthly payments on the loan so that you can build a good payment history. This will help you to improve your credit score with time.
A word of wisdom: Look at the repayment term of the personal loan. If it’s too long, then try to avoid it. Long repayment terms mean you’ll pay more eventually. So, you should always try to avoid that.
What if you can’t qualify for a personal loan?
If your credit score is too poor, then you may not qualify for a personal loan. Some lenders may agree to give you a loan but at a high-interest rate. You have to compare the APR on your credit card with the loan offered to you. If the APR is almost like the credit card, then there is no benefit in consolidating it with a personal loan. You have to look at other options.
The first option is credit card debt settlement. This option can help you get out of credit card debt by paying less than what you owe. The credit card debt settlement companies negotiate with creditors to lower the payoff amount and waive off late fees. The negotiation process goes on until an amicable solution is reached. You have 2 options. The first option is you can settle credit card debts on your own. The second option is you can work with a law firm that offers credit card debt settlement services. The advantage of working with a law firm is that you can get legal advice on credit card debt settlement. They can educate you about the various laws that both creditors and you need to follow. Moreover, if your creditors decide to sue you, then the law firm can help you to deal with the lawsuit and escape wage garnishment.
The second option is a credit card debt consolidation program. It helps you to pay off credit cards with a budget-friendly and customized repayment plan. In this debt relief option, credit counselors negotiate with your creditors to lower your interest rates so that you can pay off credit cards as per your convenience within 3 to 5 years.