For many Americans, credit cards turn into a debt trap, with which they are not able to cope. That is why the total debt on credit cards in the United States is estimated at trillions of dollars a year.
Perhaps you are one of these people who are overwhelmed by credit card debts. Then you are probably wondering how to pay off your credit card debt. You are trapped in a psychological pitfall, when for a purchase you don’t seem to have to pay cash on the spot. In fact, you pay later and more than the price of your purchase. Surely you know about it, but often at the time of buying you do not want to think about it, you just forget about it.
But this is not the most dangerous thing in credit cards, the variable interest rate changes depending on the amount of your debt, therefore, the more you spend, the faster your debt grows. Both should be remembered before making a purchase, but that already now, when the debt already exists and has grown to too large so that you can pay it yourself.
Now you need to think about how to repay it and one of the appropriate options is a personal loan. However, when is it time to take a loan to pay off credit card debt? If you are already asking this question, then it is interesting for you to get a loan to pay off credit card debt. Read on to find out about it.
What is a personal loan?
Personal loans are installment loans that have a start and end date, a certain loan amount and a fixed interest rate, and they are repaid over the entire term of the loan in equal monthly installments.
This means that if you do not violate the terms of monthly payments, the amount of your loan will remain unchanged. Every successful monthly payment will reduce your debt by as much money as you paid.
Unlike credit card debt, your credit limit can only be used once and such a loan is easier to control, thanks to a fixed annual interest rate.
In addition, personal loans do not require collateral, which means that you will not risk any of your property. If you take a loan to pay off credit card debt, you will most likely get a decrease in the interest rate due to the fact that the variable factor is removed, and your debt will not increase anymore.
Despite the fact that personal loans usually have a higher interest rate than, for example, car loans, you still win by transferring your debt from a credit card to a personal cash loan, thanks to complete certainty. Still, the interest rate in most cases will be lower for a personal loan than for a credit card.
When to take out a loan?
It makes sense to use a personal loan when you realize that you cannot cope with credit card debt alone and find a personal loan with acceptable terms and a lower interest rate.
A lower interest rate will allow you to pay less for debt, with the same initial amount. Thus, spending the same time to pay the loan, you can spend less money. Either you repay the loan more quickly, which will also be beneficial for you by reducing the interest rate accrual time in favor of the lender.
Your debt will not increase due to the open credit line and making new purchases by you. A personal loan has a limited specific term and amount that you can use only once. Your debt will not increase, but on the contrary, as you make successful monthly payments, it will gradually decrease until you fully repay it.
By consolidating several of your debts, regardless of their type, you make it easier for you to manage your debts, because you don’t have to be confused about your loan payments, their due dates and amounts. With several credit cards with a balance, you can consolidate and reduce your total debt by uniting their balance under a total personal loan.
Until you fully repay this consolidating loan, you should not open other new credit cards or take other loans. This will help you not to fall into the new trap when you feel freer from facilitating debt repayment. All debts will be repaid by a personal loan lender, but you will owe him an amount that will slightly exceed the sum of all the debts he has repaid for you.
When it does not make sense?
Getting a personal loan is not a panacea in all cases absolutely. The situations with debts and the state of credit are different for everyone. Also, the terms of personal loans may differ from different lenders, and of course, the conditions specifically for you will depend on your credit rating, your credit history and your financial capabilities.
The ratio of your income to your expenses may also affect the decision of the lender to change the interest rate and other loan conditions for you. The lender will take into account all the factors to determine your level of risk as a borrower and on the basis of this information will offer you specific loan terms for you.
If under the conditions offered to you the monthly payment will exceed the amount of your current monthly credit card payments, then such a loan would not make much sense for you, other than facilitating the management of your debts.
Also, the monthly payment for a personal loan can be higher because of too much debt and a shorter personal loan period available to you. In this case, if you do not have the opportunity to pay monthly more, then this option will not work for you.
Consult with a specialist
If your credit card debt doesn’t give you peace of mind and you want to get rid of it, but you don’t know which solution is right for you, then you should probably turn to people who are professionally involved in finance.
As you may have noticed, there are quite a few factors that can affect the expediency of paying out credit card debt by means personal loan.
Use our loan application form to leave a request and get a lot of different options available to you under your unique circumstances, as well as advice from our financial experts.